#Article (Archive)

The exchange rate conundrum

May 22, 2015, 10:37 AM

The rapid depreciation of the dalasi has caused a lot of challenges for the Gambia economy.

Over recent months, the dalasi depreciated against major international currencies such as the dollar, pound sterling, Euro and the CFA, hitting the mark of D75 to a British pound; D50+ to a US dollar, D55 to a Euro, and D425 to CFA 5,000.

Realising this situation, government authorities intervened by setting the rates of foreign currencies “immediately based on their real value”.

The government decided to take this measure because it wants to stem the hoarding and speculation of the dalasi to tackle the rapid slide in value of the country’s legal tender.

As a result of the rapid depreciation of the Gambian dalasi, prices of commodity have soared, cash withdrawals from banks by depositors increased to maintain the value of their savings, as people and businesses continue to chase foreign currencies for safekeeping,

However, while the exchange rate control is observed, the situation has posed other challenges that need to be addressed.

These include shortfall of foreign currencies in the economy, increasing hoarding and speculation, excessive demand for foreign currencies, and negative impact on the banking system, re-export trade, and services. It also has an impact on the poor and those who rely on remittances from abroad.

Presently foreign currency is hardly seen in the financial system be it in the banks or the parallel markets, which is seemingly being hoarded to the highest order, as before this time it was being seen or exchanged for the dalasi in town.

International financial transactions of commercial banks, forex bureau and money transfer institutions are also gravely affected.

There is likelihood that re-export trade - as Gambia serves as a hub for trade in the sub-region - would shrink gradually on the backdrop of shying-away foreign currencies from merchants and traders from other parts of the sub-region.

Another challenge being faced is that the dalasi value of remittances from abroad would drastically cut down, creating shortfall in the income and expenditure of the poor and people who rely on remittances from abroad.

This situation, therefore, needs to be fixed properly for the good of the economy and the populace.

“We know that advanced economies with stable governments that borrow in their own currency are capable of running up very high levels of debt without crisis”