The Zambian Kwacha Exchange Rate
24th April 2023
After a seeming free fall, the Kwacha has rallied strongly against against major currencies and moved from about K22:$1 down to K17.4:$1 and all this within a week.
This is to be greatly appreciated considering the high cost of imported goods to an ordinary Zambian.
Having said that, as the public, we have not received an explanation of what is happening to our exchange rate.
In the last few months, we have seen the Kwacha go into free fall, and then rallying against major currencies rather rapidly. The cause of the loss and the rapid exchange rate gain, has not been explained to the public by those that should and as a result, the cause of the losses and gains are left to conjecture.
Why is it important to understand the underlying cause for the foreign currency fluctuations?
For the business community, it helps with planning. If the reason for the movement of the rate is known, either way, it will then be possible to know whether that movement will be sustained over a long period or not. For a business dealing with large volumes of foreign exchange, a difference of say, K6 in the rate, can result in large foreign exchange losses. This is why, for a business, a stable exchange rate is preferable.
We have seen celebrations, in some quarters, to the effect that the exchange rate has come down. Before we join in those celebrations however, we again ask – Why has the exchange rate come down?
- Is this as a result of Central Bank intervention (releasing some dollars in the economy)?
- Have we embarked on some venture that has started to generate foreign exchange?
- Have we received an injection of funds in the economy?
One-off interventions will not sustain the exchange rate at an adequately low level and the rate will trend upwards again as soon as the effects of that intervention wears off.
What will sustain the rate, and what we as a nation should be pushing for, is our embarking on economic activities, that can generate adequate foreign exchange for the nation. This is an imperative.
Sharing information regarding the cause of foreign exchange rate movements will enable the business community to make informed decisions.
CHISHALA KATEKA
President – New Heritage Party