Friday, July 22, 2011

DRC unique way to set its exchange rates…


While most of the countries in the world see their exchange rates fluctuate and be determined by the supply and demand of their local currency (when the currency is not paired to a major one such as the USD or the EUR) , the DRC Central Bank has its own a unique way to determine its daily official exchange rate.

It is estimated that 80% of Forex transactions are done in the Congolese black market, affectionately nicknamed ‘Wall Street’! Therefore, every morning, a typical trader will call the most important dealers in Wall Street to assess the real supply and demand and set the exchange rate of the day (yes the rate is set up once a day!!!) for his bank.

At the end of each day, the Central Bank (CB) is calling each bank to request for the volume of transactions done during the day and the related exchange rates. It is worth nothing that the CB has absolutely no mean to control the figures given by the traders!!! Then, the CB is computing the weighted average rate and issue the official exchange rate of the day (at the end of the day!!!).

As a result, the Congolese official exchange rate is derived from the street…

In the past the Central Bank has accused ‘Wall Street’ dealers to be at the origin of the CDF volatility. The dealers’ answer was scathing: they (the CB) should stop printing money and they will see the difference instead of blaming us…

3 comments:

olivier said...

i like the ''cambiste'' comment to the reserve bank..loool, stop printing money...looool...basic monetary eco 101

Huguette said...

What a mess. And who gives banks the daily FX rate? They also decide on their own?

Herve Otschudi said...

Commercial banks determine their rates based on the supply and demand on the black market essentially because the majority of Forex flows are happening there. The volume in the official circuit is very small…

Discussion sur le secteur bancaire avec Bob Nzoimbengene, Partner chez Deloitte.

Une fois n’est pas coutume, l’analyse du secteur bancaire sera faite cette fois-ci par un ancien banquier. J’ai le plaisir d’accueillir mon ...