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Kwacha rises after dollarisation ban
- Updated: July 5, 2012
ZAMBIA’s sole legal tender, the Kwacha rose to its highest level in nearly two months on Monday, driven by the new law limiting the use of dollars that has seen locals convert hard currency into Kwacha.
Reuters reports that the commercial banks quoted the Kwacha at 5,110/5,160 to the dollar, compared to Friday’s close of 5,140. It traded at a session high of 5,105, a level last seen on May 11 2012, when it traded at 5,080 to the dollar.
Through Statutory Instrument number 33 of 2012, the Government introduced a regulation requiring domestic transactions to be quoted or paid for in the local currency thereby increasing demand for the Kwacha, said Leon Myburgh, sub-Saharan Africa strategist at Citi.
“That forced some people in the economy to start transacting in Kwacha, which meant they had to convert their dollars to Kwacha to be able to transact,” he said.
The new regulation came into force on May 18 2012 and prohibits the use of US dollar and other foreign currency to buy domestic goods and services.
According to the Bank of Zambia (BoZ) the penalties for the violation of the ban include up to 10 years jail-sentence.
The policy was intended to limit the common practice of quoting goods and services, such as health and education, in dollars instead of Kwacha, Mr Myburgh wrote in a recent research note.
However, the BoZ has said there will be no restrictions on Zambians holding foreign currency.
According to the central bank, the move is mainly aimed at enforcement the use of the Kwacha as a sole legal tender in the country.
Locally, the new law has raised heated debate with some stakeholders especially those in the tourism sector indicating that it will impact negatively on their operations. Others have supported the measures saying that it will help strengthen the value of the Kwacha.
Externally, Absa Capital said increased capital requirements for local and foreign banks were also helping to bolster the Kwacha. This would not only “drain Kwacha liquidity, but cause these banks to convert some of their dollars into Kwacha by year-end, which are both ZMK positive,” the bank said in a research note.
The Kwacha has strengthened in the last seven weeks despite a fall of nearly five per cent in the price of copper, Zambia’s main export, due to slowing demand from China. Copper was quoted in London at $7,641 per tonne on Monday from $8,013 on May 11 2012.
(Source: Times of Zambia)