Zambia warns businesses against quoting in U.S. dollars

Zambia's central bank on Wednesday warned the business community against quoting their goods and services in U.S. dollars following the rapid depreciation of the local currency, saying the practice was undermining efforts aimed at stabilizing the free falling currency.

The Zambian currency, the kwacha, has depreciated significantly in recent weeks, a move that has seen some business houses quoting their goods and services in U.S dollars because of the volatility of the local currency.

But Bank of Zambia (BoZ)'s head of communications Kanguya Mayondi said the central bank was concerned with the decision of some business houses to price locally traded goods and services in foreign currencies.

"This practice undermines the macroeconomic stabilization efforts that are being undertaken. It should also be underscored that inflation in Zambia remains stable and has been declining during the year. Therefore, macroeconomic conditions do not warrant pricing in foreign currency for domestic transactions," he said.

Pricing in foreign currencies, he said, reduces the price incentive of depreciation in encouraging businesses to engage in the export or production of goods that are currently imported, adding that such actions work against the necessary adjustments.

"In addition, the pricing in foreign currency implies that businesses are adjusting their prices to reflect the extent of the movements in the exchange rate and yet most of their operating costs are not in foreign currency," he added.

According to him, the adverse effects of pricing and paying in foreign currencies are mainly being felt by the general public rather than business houses, adding that the general public has no ready means of hedging against currency depreciation.

"Incomes of the overwhelming majority of Zambians are not in foreign currencies. Therefore, these are bound to bear the full impact of quoting prices in foreign currencies more so if compelled to pay in foreign currency for domestically traded goods and services," he added.

The central bank further said quoting and demanding payment in a foreign currency amounts to dealing in foreign currencies and that this may lead to a multiplicity of exchange rates which may differ significantly from competitive market rates and thereby destabilize the orderly functioning of the foreign exchange market.

"If left unchecked, the practice has the potential to increase the demand for foreign exchange and intensify pressure on the exchange rate," he said. Endit