Uncertain economic times are never good for small nations with developing economies. Capital outflows are difficult to control when investors shift their focus to searching for “safe havens” instead of risk-based returns. Foreign investment is often necessary to develop the infrastructure that will monetize national assets in the ground, but an inward flow of new funds can lead to rampant inflation unless banking officials move quickly to quell it at its early stages. Increased government spending can also fan the flames.
This scenario has played itself out in Zambia, but recently government officials have moved deliberately to stabilize the Kwacha (“ZMK”), the country’s national currency. The “Kwacha”, its name derived from local language for “Dawn”, came into being in 1968. It was designed to replace the short-lived Zambian Pound. At the time, the rate of exchange for the Kwacha was “fixed” at “2:1” for the Pound and “1.2:1” for the U.S. Dollar. Economic crises and over-spending by the government led to hyperinflation during the eighties and nineties. One Dollar now equates to roughly 4,900 Kwacha.
The new millennium, however, brought favorable changes after the privatization of government-owned copper mines. Increased output from the copper mines has led to profitability, less subsidization of the industry by the government, and positive economic growth. GDP growth for the past five years has averaged over 6% a year, and prospects for 2012 are for more growth at the 7.7% level. Inflation remains a problem, but single digit rates are much better than previous 25% levels.
As Africa’s largest producer of copper, the financial dynamics of Zambia are now entwined with the fate of copper prices on the global market. The following chart illustrates this new reality:
In today’s modern world of globalization, our financial markets are now more interconnected than ever before. As a result, pricing behavior of a national currency may depend both on domestic dynamics, as well as what transpires outside of its national borders. The Kwacha is what is known as a “commodity” currency, much like the Aussie Dollar, also included in the above chart. Whereas the Kwacha is dependent on copper prices, the “AUD” fluctuates according to movement in iron ore, coal, and precious metals.
Commodity prices have declined significantly over the past twelve months, some 45% and 48%, respectively, for steel and copper, both leading indicators for the health of the global economy. These declines have weighed heavily on both the Kwacha and the Aussie Dollar. Value depreciation was to be expected under these circumstances.
Government officials in Zambia, however, have moved on a number of fronts to bolster the Kwacha and restore confidence in the fledgling currency by its national populace. The central bank recently set a new benchmark interest rate of 9% to stem inflation, and the government is reviewing an initiative to lop three zeroes off the current exchange rate to increase the usability of the currency in various markets, a process known as “redenomination”. Redenomination is not a “revaluation”.
Perhaps, the most impact-laden change, referred to as “shock therapy” in some quarters, has been the adoption of new regulations that require that, subject to a 10-year jail term, all domestic prices must be stated in Kwacha. Foreign hard currencies have flooded the market, but the time has come for Zambians to have faith in their own currency. The “bump” in May and the recent 10% spike up can be attributed to these new rules.
It has been a long road to prosperity for Zambia, but a strong Kwacha will prepare the way for better times for all. Only time will tell.
By Tom Cleveland – http://www.forextraders.com
Yes our Kwacha should have strength
For sure ,time wil tell whether Kwacha strength is sugar-coating or economic factor drivers.As for now,its dificult to notice the positive impact.CNP as usual.
Encouraging results, I hope we can maintain or improve these results.
Government says the 10 % appreciation of the Kwacha against the dollar is an indication that the investor community still has confidence in the country’s investment climate under the Patriotic front administration.
Deputy Minister of Finance Miles Sampa says even the government decision to come up with a statutory instrument to ban the use of the dollar in the local transactions is meant to strengthen the Kwacha against the major foreign currency.
PF Government at work. Am not Pf but on this one a well meaning Zambian needs to appreciation.
Good move by CNP Gov. hope its good sign for good thing ahead.
I am just waiting my five ngwee
A rather weak article given its length…..but sort of positive I guess.
LOVE YOUR ZAMBIA, MAKE ZAMBIA PROUD VOTE FOR OUR GIRL TALIA IN THE BIG BROTHER AFRICA HOUSE, FROM WHEREVERE YOU ARE. REMEMBER, IT’S NOT ABOUT HER, IT’S ABOUT ZAMBIA. AFRICA RESPECTS YOU FOR WINNING AFCON WHAT ABOUT A REPEAT OF THE BBA PRIZE? HERE IS HOW TO DO IT, SO LET’S DO IT EVERY DAY UNTIL THIS SATURDAY, AND YOU CAN DO IT UP TO 100 TIMES FROM THE SAME NUMBER, ZAMBIA WOYE!!
IF YOU ARE IN
SMS “VOTE TALIA”
TO
SOUTH AFRICA 33729
NIGERIA 34350
ZAMBIA 4333 (DEPENDING ON NETWORK)
TANZANIA 15726
MALAWI 15626
GHANA 1474
BOTSWANA 16626
UGANDA 7626
NAMIBIA 15626
LIBERIA 2626
SIERRA LEONE 2626
come on mweabantu; LOVE YOUR ZAMBIA, MAKE ZAMBIA PROUD VOTE FOR OUR GIRL TALIA IN THE BIG BROTHER AFRICA HOUSE, FROM WHEREVERE YOU ARE. REMEMBER, IT’S NOT ABOUT HER, IT’S ABOUT ZAMBIA. AFRICA RESPECTS YOU FOR WINNING AFCON WHAT ABOUT A REPEAT OF THE BBA PRIZE? HERE IS HOW TO DO IT, SO LET’S DO IT EVERY DAY UNTIL THIS SATURDAY, AND YOU CAN DO IT UP TO 100 TIMES FROM THE SAME NUMBER, ZAMBIA WOYE!!
IF YOU ARE IN
SMS “VOTE TALIA”
TO
SOUTH AFRICA 33729
NIGERIA 34350
ZAMBIA 4333 (DEPENDING ON NETWORK)
TANZANIA 15726
MALAWI 15626
GHANA 1474
BOTSWANA 16626
UGANDA 7626
NAMIBIA 15626
LIBERIA 2626
SIERRA LEONE 2626
HAIVOTELE UMWINE TALIA HUT
thats pf working am loving this guys zambian kwacha is good………….and thanks to P.F government
Die überwiegende Mehrheit steht gegen diese Dunkelheit und, wie weiße Blutkörperchen Angriff auf einen Virus, verdünnen sie und schwächen und schließlich abzuwaschen die Übeltäter und, noch wichtiger, der Schaden, den sie anrichten.