If you are disconcerted at the current depreciation of the Zambian currency to the USA dollar, it shows a lack of understanding of the factors that determine the currency exchange rate of one currency to the other. To believe that (recently) the USA $1=ZMK10=SA14 Rand is not only a misconception but rather being delusional.
In fact, a nation’s exchange rate is not a true reflection of its economic situation. The Zambian currency has been artificially set since before the recent ill-conceived Kwacha debasing. To believe that the Zambian Kwacha is at the same rate as the South African Rand, is a fallacy. South Africa has a bigger and more stable economy than that of Zambia, at 400 billion dollars GDP ($6,160 GDP/capita) compared to 26 billion dollars Zambian GDP ($1,510 GDP/capita).
One major factor that determines whether the (Zambia) Central Bank will have an in-flow or out-flow of dollars is the desirability of the amount of goods and services Zambia is exporting.
Currency exchange rates are a nation’s monetary policy. The pegging of $1=K10 has little correlation to the strength of the economy. A true exchange rate is determined by the real interest rate of that country, which is an indication of the demand for the goods and services of that country.
Have you ever wondered why the U.K. Pound (£) is stronger than the USA dollar, but the USA dollar is more desirable than the Pound? It’s because of the strength of the fundamentals of the USA economy and the trust and belief in its economy through the US Treasury Bills.
Zambia’s exchange rate is not a true reflection of its current economic situation. At $1=K10=14 Rand, does not in a way represent anything close to the economy of South Africa. Our currency has been artificially set since before the ill-conceived currency debasing.
Currency Interest rates are as complicated as the determination of GDP, which is another factor that affects the exchange rate of a currency.
The true estimate of the Zambian kwacha exchange to the dollar should be no less than
200 Kwacha.
By GM Ngoma
We have a president in Edgar Liung who does not understand the economics fundamentals and he chooses to be advised by a buffoon in Lubinda Habazoka!! We have a problem
Most of you that are criticizing the short write up are useless. The writer whoever it is, is just pointing to some know fundamentals. If you want to further research go on and do it yourselves. In fact his simplistic outlook is for dimwits like you. You want him/her to write a full paper for you? You will not understand anything. All you do is criticize!
There in between lines lies the fact: exporting countries try to lower exchange rates to make their good sellable outside their countries. SA and Zambia are at opposite ends of the spectrum. I wish you could deal with this fact. Truth be told, Zambia as an importing economy loses when pitted against SA for this very simple reason. The same goes for US vs UK.
Lusaka times please give us decent content ,There are some many holes to punch in this write up .This sounds more like an opinion than an educated paper aimed at spelling the truth.We don’t even know who the Author is .For all we know he could be a semi literate money changer on the streets…..
We kept telling lungu and his gang to ease up on building roads and concentrate on manufacturing/assembly to cut exports , creat jobs and boost exports.
We are indeed in sh.it
South Africa has a bigger and more stable economy than that of Zambia, at 400 billion dollars GDP ($6,160 GDP/capita) compared to 26 billion dollars Zambian GDP ($1,510 GDP/capita)
BUT GDP is just one of the factors that affect the exchange rate. Read and consult more Sir.
Results of unprecedented stealing, by J0n@ WABANTU, & his cabal of Corrupt /Violent crooks, p!mps & pirates.
Also explain to us why the British pound is stronger than the U$ dollar even when America has a far much bigger economy than that of the UK. We can go on the Japanese Yen =Dollar, Chinese Yuan = Dollar, Tanzanian Shilling = Dollar which is almost 2900 to 1 U$ Dollar. This is considering that Tanzanians economy and GDP is bigger than that of Zambia. Angola has a GDP of almost 150 Billion Dollars and only second to South Africa in the SADC region.But their exchange rate is 150= 1U$ dollar. What about the Nigerian Naira which is 361 = 1 U$ Dollar. Why is it that we don,t have a parallel exchange rate on the black market for the Zambian Kwacha because that would indicate true fixing of the exchange rate. Economists please educate us here.
True there. Kwacha if I remember well was well auctioned before MMD came into power and the economy was fully liberalized. Its not true that kwacha’ s rate is fixed. If you came to Malawi or went to Zimbabwe you will actually see the currency fixing consequences.
The article has failed to takle a very good topic.
You have not said anything new here, this is a very shallow article.
To give credit where it’s due, the kwacha has started appreciating again today reaching 13.5 to 1usd. Whatever the finance minister and BOZ are doing please continue so that we can go back to the K10 per dollar that we had gotten used to.
I left Zambia when it was K4. 60 per dollar
This is not true reflection of Kwacha to dollar.
Kwacha is useless because it has no bearing of comparison that goods have also gone down.
Lungu is cheated by evil men around him.
Bo Ngoma why do you enjoy writing bad things about your own country just because of hate? If Zambia’s kwacha is the world’s performing currency, where do you place the Zimbabwean Dollar, Syrian Dollar? Just because you want your HH in power so you black mail Lungu in all ways! Hichilema will continue to be a cry babe, he will never win in Zambia.
Why do you always write bad things about your own country? This barbaric and uncivilisd mentality should come to an end in this era. you just go to the university you think you are knowledgeable enough to write about everything. Do your Research before writing anything.
Much as factors such as inflation, interest rates,terms of trade etc are determinants that influence the exchange rates,in the case of Kwacha,the real problem is our main export.Any currency has its underlying asset backing it.In our case,its copper.Zambia depends on the mining houses to be given figures of how much about tonnage of minerals has been mined and exported.Zambia has no capacity or mechanism to verify or countercheck the output figures of its number one export commodity,neither are proceeds of sale banked within our system.How can our Kwacha appreciate when it does not directly participate in the production and sale of its underlying asset(copper)?
The writer seem to aim contaminating the unsuspecting public with his misunderstanding on exchange rate determination. Extending the fallacy that the rate is determined by the central bank. The rate is determined by long term fundamentals (demand and supply of Fx) , which themselves are determined by the underlying flow of exports, imports, services, capital flows, portfolio flows and other items in the Balance of Payments.
Then there are the short term factors that play out in the FX market, including amount of Kwacha, sentiment, speculation, etc. The central bank only comes in on the tail end of all these long term and short term factors.
Please research before you show ignorance.
Very shallow analysis.