Why the Congolese franc is falling against the US dollar

[Illustrative image] A street stockbroker exchanges U.S. dollars for Congolese francs in Lubumbashi, Democratic Republic of Congo (DRC) on January 13, 2021. AFP - SAMIR TOUNSI

Text by: Olivier Rogez Follow

3 min

In recent weeks, the US dollar has become increasingly expensive on the parallel market in the Democratic Republic of Congo. It takes about 2,300 francs for a dollar in Kinshasa against 2000,2023 at the beginning of <>. Why this sudden deterioration, in a country where people save in dollars? Decryption.

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This is the question that haunts the daily lives of many Congolese: will the franc continue to fall against the dollar? In a country where people protect their purchasing power by saving in dollars, the question is far from being reserved for economists. However, in recent weeks, the dollar has become increasingly expensive on the parallel market. It takes about 2,300 francs for a dollar in Kinshasa against 2000,<> at the beginning of the year. Why this sudden degradation?

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Every crisis leads to speculation. For economist Hubert Mpunga, we should not look far for the reasons for the decline of the Congolese franc against the dollar. "The war in eastern Congo has unbalanced trade in goods and services," he said. It is used as a pretext for some traders to increase the prices of imported products. Inflation – which reached 13% last year – is already climbing to more than 5% in the first three months of the year, which is also reflected in a weakening of the Congolese franc. This war also costs the state budget a lot of money. That of Defence has thus experienced a spectacular leap this year. And since January 1, the state has been in regular deficit. Nevertheless, the Department of Finance claims that these deficits are filled by treasury bills and do not theoretically affect the exchange rate.

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« The Congolese economy lives in two parallel worlds »

On the other hand, the state's wage policy – which is gradually settling salary arrears accumulated in the civil service – weighs on the Congolese franc. Indeed, many Congolese convert their money into dollars, "which influences the price because of the law of supply and demand," says Hubert Mpunga. Because "the Congolese economy lives in two parallel worlds," says analyst Al Kitenge, between the official currency market and the unofficial market. "This schizophrenia is a weakness," he says. The informal commercial sector sources its dollar from the parallel market and not from the Central Bank, which weighs on prices, especially during periods of strong growth.

However, the Congolese economy is currently operating at full capacity. International Monetary Fund (IMF) forecasts suggest growth above 8% for 2023. "Sectors such as construction, which import a lot, are exploding the demand for foreign exchange," says Hubert Mpunga. In general, "as long as the country imports finished products and exports only minerals and raw materials, the foreign exchange market will be fragile," he said. Industrialization and the creation of value chains is therefore the only medium-term hope for limiting exchange rate fluctuations in the informal market.

Beyond economic speculation, some also point to less worthy intentions. Al Kitenge recalls that Congo is in an election year, and that "some opponents with deep pockets use funds to destabilize the foreign exchange market and thus demonstrate that the State does not control its macroeconomic framework". A thesis that is difficult to verify, but which reflects a reality: the dual exchange rate system limits the State's room for manoeuvre to stabilize the currency.

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