Kwacha is battered but dollarisation not solution, Fundanga notes

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FORMER Bank of Zambia governor Caleb Fundanga says dollarising the Kwacha currently under pressure from the United States (US) greenback is not a satisfactory solution to address challenges affecting the local currency.

 

Zimbabwe experienced rampant inflation resulting in the collapse of that economy, but adopted dollarisation which is a situation of aligning a country’s currency with the US dollar to become legal tender for conducting transactions.

 

The main reason for dollarisation is because of greater stability in the value of the foreign currency over domestic currency.

 

When asked if it would be feasible for Zambia to dollarise since the Kwacha has lost ground, trading around K10 to a dollar, Dr Fundanga said ensuring a stable macro-economic environment is the best solution to address depreciation.

 

The fall in the Kwacha has resulted in higher cost of doing business.
Dr Fundanga, who is executive director at the Macro-economic and Financial Management Institute of Eastern and Southern Africa (MEFMI) in Harare, Zimbabwe, said using a foreign currency as your own is an admission that you cannot run your monetary policy.

 

“It shows a lack of confidence in your system. We should not advocate for that, we should not rush into switching to start using US dollars because it is not a satisfactory solution to addressing a depreciating currency.

 

“Of course, the Kwacha is battered but it is not the only currency facing a crisis, actually it is performing better than others, all we need is to create a stable macro-economic environment then the Kwacha will be fixed,” Dr Fundanga said.

 

MEFMI is a regional institute that conducts training for members of staff for central banks and ministries of finance and national planning.
Due to fallen commodity prices and reduced demand by China, several sub-Saharan African countries’ currencies have depreciated rapidly against the US dollar with the South African rand (ZAR) trading at ZAR13.8959 from Sunday’s ZAR 13.8903.
According to the foreign exchange converter (http://usd.fxexchangerate.com/africa/) , the Ghanaian Cedi (GHS) also depreciated from GHS 3.80 to close GHS3.84 against the dollar while the Nigerian Naira (NGN) is currently trading at NGN 199.5 from NGN198.7 against the dollar.

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