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…

Weekly update: Forex and Inflation

Following the CDF shortage described in my previous article, the USD has continued to lose value (-0.7%) against the local currency. According to Ali Nasser, trader in an international bank operating in Kinshasa, the commercial banks had to purchase CDF from the Central Bank in order to find the necessary Congolese francs to pay their customers taxes.

As stated in my last article, the Congolese economy is highly dollarized and the principal reason companies keep/seek CDF is to pay taxes which cannot be paid in foreign currency. Commercial banks unable to sell USD to the Central Bank to pay for these taxes because of their exchange position (square or too short) had to borrow money (from the same Central Bank between 32.5 and 48%).

Source: Banque Centrale du Congo

On the inflation side, the Consumer Price Index has increased by 0.27% in a week leading to a year-on-year inflation of 18.68%. If this trend remains stable until the end of the year, the annual inflation rate should reach 26.43%. 

Exchange rates/Taux de change

Since 2007, the USD has gain 83% against the Congolese Franc (CDF). However, we notice a certain stability on the Congolese FOREX market with an appreciation of only 0.9% of the USD against the CDF. 

According to a poll organized by the Central Bank of Congo among business leaders, the business confidence in the economy (Measured by the difference between the proportion of those with a positive opinion and those with a negative one) has grown from to +23,6%  in May from+ 4.6% in April. This is a substantial increase month-on-month and seems to demonstrate a higher confidence in the authorities’ abilities to maintain a certain macroeconomic stability.