Stop the currency fixing nonsense

Of course, I get it. The depreciating kwacha is eroding our earnings in real terms by the day.

I get it that for import dependent Malawi, a depreciating kwacha is further pushing the prices of goods and services in the country, especially when salaries are not being adjusted in the case of the working class and business is so bad that revenue is, in fact, shrinking for most enterprises.

I understand the anger when people see their local unit sliding helplessly downhill. In August 2015 alone, the Malawi kwacha ceded 10 percent against the United States (US) dollar, 8.6 percent against the British pound and 13.4 percent against the euro. According to Nico Asset Managers, the local currency retreated by 19.7 percent in the year to end August 2015 against an 8.4 percent slump in the same period last year. And Nico Asset Managers paints a gloomy exchange rate outlook in its August economic report in which it says: “The kwacha is expected to depreciate further in the short-term as the lean season approaches and donors continue to withhold budgetary support. The magnitude of the currency depreciation in 2015 may be cushioned by the level of foreign currency reserves available after the tobacco season and if the RBM [Reserve Bank of Malawi] decides to intervene in order to reduce the rate of depreciation. In the medium to long-term, the currency will depreciate on account of the significant current account deficit and weak investment inflows despite tobacco exports and improving forex reserves”.

The truth is that the RBM has tried to enforce various currency trading directives aimed at controlling the pace of the depreciation, but that has achieved nothing.

In fact, the central bank has had to reverse some of those measures such as the one restricting the exchange rate spread between the buying and selling rates to K5 because they realised it was not making any difference.

I had already said in my earlier entry in this column that the monetary authorities were wasting their time as this would never work.

Once again, I will not say I told you so because there is nothing to gloat about here. It is pain for everyone.

As far as I am concerned, there are three major, but obvious, problems that are battering the kwacha right now and these challenges are out there for everyone to see. The first is the stubbornly weak export base—as a country, we import so much and export so little. It is that imbalance that ails our kwacha.

The second problem is greed. There is no doubt that speculative tendencies by currency traders, especially in authorised dealer banks (ADBs), are undermining the value of the local unit.

Those with forex are hoarding in the hope of making a killing during the October-January lean period, thereby creating artificial shortages on the market.

Otherwise, how do you explain the kwacha’s steep slide when the country was, at least by the end of August, sitting on gross official reserves of $684 million (more than three months of import cover)?

I understand the panic that has gripped the country. But when we panic to the point of losing our heads, then we will lose it all.

Of late, I note there are calls for government to return to the policy of fixing the currency. What hodgepodge! What is even laughable is that those who pushed authorities at the time to float the kwacha, have conveniently forgotten their stand at the time and are now panting for the very policy stance they campaigned against.

I have always maintained that I did not like the manner in which the kwacha was thrown to the wolves back in 2012. It was irresponsible and we have paid the price, maybe are still paying for it.

We made our bed and we must lie in it. And while I appreciate fluidity in policy making, I do not believe that flip-flopping between the flexible exchange rate and a fixed regime will fix anything.

In fact, it could only bring confusion to an already confused market through the medium to long-term uncertainties that usually come with inconsistent policy-making. Besides, have we already forgotten how a fixed currency regime almost brought this country down?

Make no mistake—those 24/7 fuel queues were the direct result of a fixed exchange rate policy regime that was not supported by any meaningful policy to expand the export base so that we had a steady flow of forex that would discourage hoarding and parallel markets. Imagine how worse the situation would be today without budgetary support!

I can cite so many practical examples of the ills we suffered under a fixed currency policy, but I do not have the space.

But when the chaff is peeled off, the grain of truth is this: We bargained for a market-determined exchange rate. When the market made it strong, we loved it. Now that the market has determined that it is weak at this stage, we hate it?

Come on! Let the kwacha bottom out. And stop the currency fixing nonsense! It is suicidal at this stage.