Kwacha Depreciation

I have always looked at the way we handle the depreciation of the Kwacha and the panic that is associated with it in wonder. There is nothing wrong with an floating exchange rate to float! That is why it's called floating.

Let the Kwacha Depreciate

If it needs to, let it depreciate. However, just ensure that there is stability on this depreciation path. It's safe economics.

The worst thing that can follow such a move (which mostly has happened in the past in this country) is to come up with funny policy changes and falling into the trap of the people you had been trying to catch. There are a lot of theories on what can happen and why it is happening. The safest is to look at the decisions that need to be done and then work your way in ensuring that those do not negatively affect the economy.

I love it when there is so much work on the background by people affected by one measure and how they convince the world that is we do this, things would change. The interesting part is that, that same thing has absolutely nothing to do with the other. You feel like you are watching leverage season "Zambia".

Why is it Falling?

Why is the Kwacha falling? That is easier to find than MH370! We surely don't even need the satellite. There is tones and tones of statistics that can be used to gauge this. We even have SI 55 as a tool to use for extra input into our analysis. We just need people seating on it and working through. If there is nothing major but supported by the expected economics that we are bringing less and less of the dollar into the economy, we simply go out there and work our way into correcting that. That is how it works. If we see a policy not related to this and no major economic explanation, we may have used politics over economics - the worst possible way out of this.

Kwacha Economics will watch this unfold and will surely love to write on the outcome of this issue.

The Kwacha Dives!!!

This has been a sad week for this blog. The Kwacha has been given a serious beating. I have been running some analysis on how bad this has been. As usual, my analysis includes looking at data that has been provided around the environment of the Kwacha. To ensure I present only facts, I have to take my time and look at the details surrounding the issue. As usual it is not a good thing to be doing when you want quick answers. It still needs to be done properly.

All economic talk in Zambia has been on the exchange rate (Just to be on the same page - An exchange rate is the current market price for which one currency can be exchanged for another). The Kwacha has depreciated beyond all manner of psychological barriers. Currently selling at K6.0443 to a US Dollar and K10.1214 to a GB Pound (zanaco.co.zm - 7th March, 2014. Checked: 10.00hrs CAT). 

What are the causes is the biggest topic in this dive. The answers are still being looked at, but the politics associated with that "answer" are disturbing to say the least. Online media has done their "online analysis" and it has gone as far as looking at the appointments at the Central Bank. I like many friends of mine are hoping that Monday proves the online media houses wrong  and the appointed Deputy Governor is no way close to what they have been publishing. I don't think there will be anything to talk about if the seriousness that is required in the appointing of people charged with looking after the Kwacha and related to that, goes to levels of mere patronage. You can read some articles here and here. Many other online media houses have touched on this subject, but I have not linked some articles which I feel are not respecting the profession of giving information as it is and choose to take the political stand instead. Feel free look them up on google.

What really causes our currency to dive like this I still ask. I have written on this issue (in serious foras which I cannot quote), and I still believe the argument I have had still stands - we don't produce demand for our Kwacha. With a few in the lines of Maheu and Sweets exports, little value is sent to the world for them to demand our Kwacha. The mines would have been the best option, but the Swiss connection seems to take us out of the equation.

Over the past years, according to Trading Economics, the Kwacha against the dollar has been on a rather bad trend. One which should make us re-think our development agenda and encourage us to build what will make our Kwacha stable.

The trend has not been good against the dollar over the years. On average, the Kwacha is depreciating at an alarming rate.

Source: Trading Economics

That's a jump from around K4.7 to K6 in a period of less than four (4) years. The depreciation has been worse since 2012 on average.

I am alarmed to see that the dive in the past week is shockingly higher than any other time in the past three (3) years. I will monitor this and get information on the possible causes in the next few days for an update.