Saturday, July 14, 2012

Dollar Troubles

I'm sure you've been carefully watching the Zambian exchange rate lately but just in case you missed it, things are getting a little ugly in Lusaka. The basic fact is that the dollar has lost about 11% in the last two weeks. At the exchange bureau they told me that they're planning on the dollar loosing another 10-15% over the next two months. Which is bad news for missionaries and expats who are paid in dollars in the U.S. and then have their paychecks wired over for an exchange in kwacha. It means that every $100 bill that comes over will only be able to buy $75 in kwacha compared to last month's rate of exchange. Which would be no big deal if prices generally reflected that here. But when the dollar was strong over the last six months a number of big businesses here raised their prices to match the dollar. Which means with a falling dollar you now get hit on both sides from inflation and devaluation 'cause those prices of goods are not going down.

The reasons behind all of this are many but boil down to a few - the new PF government made it illegal to deal in dollars in order to A) get the old MMD government to offload their (stolen and hidden) dollars and B) strengthen the kwacha. Now buying or selling in dollars can get you 10 years in jail so the market is now flooded with people trying to trade-in dollars for kwacha creating (hopefully) a brief time where the demand for kwacha is spiking and the dollar is weak. The government is also working on a new currency by dropping the three zeros off the kwacha to make it 4.6 kwacha to the dollar instead of 4600 to the dollar (also a bid to get people hoarding cash to get rid of it - which might help flood the market and make the dollar strong again...).

Long story short - the government is creating a false demand for kwacha to strengthen the local currency and weed out crooks. Hopefully the market will set this all straight again in a month or two and the exchange rate will stabilize. Hopefully in way that won't mean that our personal and ministry budgets are suddenly 25% short every month.

2 comments:

Gabriele said...

Hey Kelly,

thanks for this. It's a great explanation. Do you mind if I use this for my own supporters as well?

Gabriele, Flying Mission Zambia

The Huckaby Family said...

sure thing gabriele!