The National Bank of Rwanda (BNR) was in a confident mood, Thursday, just before markets took an early break due to Friday’s public holiday.

As pledged ten days ago, the regulator clamped down on forex bureaus alleged to be involved in market speculation, fining and suspending some. The move reportedly helped ease the tumultuous exchange rates seen in recent weeks where a dollar went for more than Rwf800.

BNR released a press statement on Thursday evening announcing that the forex market had ‘normalized’ with $1 trading at Rwf755 down from the speculative price of Rwf800.

But several city based bureaus told Sunday Times that by close of business on Thursday, they were buying a dollar at between Rwf755 and Rwf760 and selling it for a profit at Rwf770.

What we learned from the press statement though, is that the regulator increased its intervention on the market by more than the usual once a week to beef up supply of the greenback on the market to counter speculators.

"BNR increased its intervention in volumes and frequency in a bid to contain the speculative behavior from cash traders,” read the statement.

In addition, the statement said BNR took strict regulatory measures by penalizing Forex Bureaus that allegedly caused the recent artificial dollar scarcity on the market, through monetary fines and suspension of licenses for those who were found guilty.

However, the statement didn’t give figures or specific facts as to how much dollars were released to the market or how many money changers were actually fined or had their licenses suspended.

"Those interventions and increased communication with market players have contained the speculation thus, contributed to the stabilisation of the exchange rates in the market that we are seeing today,” the regulator said.

People who went looking for dollars this week admitted that although the exchange rate was still high, they felt the impact of the Central Bank’s intervention after a week that saw some paying up to Rwf900 for a dollar.

"Honestly, the exchange rate is still high and hurting us but at least the Forex Bureaus had dollars as opposed to last week when they would say they had no supplies,” said Thaddeus Asaba, a Procurement Officer with a construction firm.

While addressing the press during BNR’s Research Day, last week, Governor John Rwangombwa said under normal circumstances, the difference between BNR exchange rate and the market rate is 2 percent within which commercial dealers can trade.

But speculation had widened the gap to over 4 percent, according to Rwangombwa. On Thursday, the Central Bank was selling the dollar at Rwf731 compared to Rwf755 that it said bureaus were reselling; the difference is slightly more than 3 percent.

Is it over?

The Central Bank might have won on its home turf this week but speculation on the local market is just a tiny dot on the list of the real factors influencing the exchange rate; in fact like the Governor admitted ten days ago, those factors are way out of his jurisdiction.

For the foreseeable future, international institutional analysts such as Citibank say the American dollar will continue to get stronger against most global currencies owing to United State’s jogging economy and struggling economies elsewhere, especially in Europe.

According to Citibank, the American dollar is enjoying its fastest rise in 40 years, by March its value had surged by 14 percent and four months later, it’s not about to stop.

Why?

International analysts note that the dollar’s rise is a direct result of America’s strengthening economy at a time when growth in other parts of the world is struggling. That trend has seen most international currencies such as the Euro plummeting against the greenback.

For smaller currencies like the Rwanda Franc, the exchange rate curve has been rising in favour of the dollar from around Rwf600 in 2011 to the current Rwf750; the difference is a staggering 25 percent over a four year period.

In the same period, the Ugandan shilling has depreciated from Ush2000 to Ush3500 as of Friday; that’s a 75 percent change.

The same goes for the Kenyan shilling, which is also East Africa’s strongest currency; it has moved from Ksh80 for a dollar in 2011 to Ksh101.24 as of Friday translating to a 26.2 percent change.

In Burundi, the exchange rate change since 2011 is over 33 percent and 32 percent in Tanzania.

Getting out

Economists such as James Paulsen of Wells Capital Management say a country’s currency is, to a fair extent, a reflection of how well or poorly its economy is performing; going by that aver, the US economy is clearly setting the trend for other economies.

Investment analysts say that as the US economy enjoys strong growth, investors around the world are jostling to have a piece of that growth and they have to use dollars to buy into it; so the ensuing demand for dollar-based investments has pushed up the price.

The rush for investors to be part of the US economy’s new found growth, according to experts, is depriving the rest of the world from the much needed Foreign Direct Investment (FDI), a major source of foreign currency for many countries.

Besides reduced FDI, experts also attribute the erratic foreign exchange rates to reduced inflows from tourism, trade, and agriculture.

Tourism sectors of most Sub-Saharan countries including Rwanda depend on European tourists  but weak growth in most European countries have had negative effects on African economies.

The Sunday Times couldn’t establish tourism performance statistics for the first six months of the year, but according to RDB, the sector registered a 9 percent increase in the number of visitors from 1 million visitors in 2013 to 1.2 million in 2014 earning some US$303 million.

Clearly, tourism has huge potential to boost Rwanda’s foreign exchange earnings and the recent reintroduction of lions in Akagera National Park, the newly created concept of Meetings Incentives, Conferences and Exhibitions (MICE) are seen as vehicles to that target.

At an event last month, Amb Yamina Karitanyi, head of the Tourism Department at RDB, said Rwanda will generate US$76 million from conferences scheduled for next year as the country steadily transforms into a hub for international conferences.

Tourism is also one way of diversifying the country’s export sector that’s heavily dependent on the traditional agricultural commodities of coffee and tea whose prices on the international market, like other commodities, has suffered in recent months due to weak demand.

Of the US$303 million receipts fetched by tourism last year, meetings and conferences contributed more than US$50 million; that share is expected to surge in coming years especially after the completion of the Kigali convention centre project.

The Turkish firm that took over from a Chinese contractor has poured workers on site and government is upbeat again that the project will finally be completed to start bringing in money.

But as the country waits for tourism receipts to surge, the Central Bank must deal with current exchange rate pressures now and in the medium term. Dealing with speculators and discouraging unnecessary domestic dollar transactions are a few ways to help the Franc resist dollar pressures.