Recently, the value of the U.S dollar has been skyrocketing against other currencies, making economic trends more complex for the rest of the world.
The greenback is typically used as a major medium of commodity exchange globally, which means that once its demand goes up, so does its value.
The Russian ruble is the only currency in the world that stands up to the dollar, while the Euro has hit equivalence with the dollar for the first time in about two decades.
According to experts, the dollar strength is mainly attributable to two factors; the rise in US interest rates to curb domestic inflation and the impact of the Russia-Ukraine conflict.
Speaking to The New Times, Straton Habyarimana, an economic analyst and professor at the University of Kigali said that the European sanctions against Russia have only strengthened the dollar at the expense of the Euro.
A strong dollar means an increase in value for the Central Bank’s U.S dollar reserves, however, according to Habyarimana, it should support traders in terms of incentivizing access to dollars so as to relieve the end consumers from bearing much of the brunt in terms of hike in commodity prices.
With exception of the Eurozone, Rwanda’s imports are mostly bought in dollars, he said, hence, if traders buy goods at high prices, they will be expensive for domestic consumption.
At the moment, Rwanda has been dealing with inflation that strains people’s purchasing power since the start of this year, with July’s commodity prices rising by 13.7percent.
Besides that, to mitigate the Franc depreciation, Habyarimana mentioned that the country can only rely on boosting its exports so as to narrow the trade deficit gap.
On the other hand, he notes that this is good news for people who have contracts in dollars as they will be earning more compared to the time when they signed them.
Dollar deficiency in forex market
Vianney Gasana, vice chairman of Rwanda Forex Bureau Association, said that there has been a shortage of dollars in their coffers, especially last week, but it’s getting back to normal gradually.
He finds that among factors for the shortage include the political situation with DR Congo that has impeded trade as borders close by 3 p.m.
"On a daily basis, we would get around $1 million from DR Congo through trade but currently, it has significantly declined to a range of $500 to $600.”
Speaking of the Central Bank's regular disburse of dollar in economy, he said, "Initially we used to get $15,000 per week as an intervention to control price fluctuation but this is the second week they have increased to $20,000 per week, all in all, the dollar is going up day per day.”
Speculative tendencies come about as a result of a few forex operators trying to take advantage of the trend by hoarding dollars and selling them at a higher rate.
As of Monday, August 1, Central Bank’s exchange rates stood at 1,018.8 and 1,039.2 for buying and selling, respectively.
According to Kasai Ndahiriwe, Director of Monetary Policy Department at National Bank of Rwanda, the Rwandan Franc has not yet weakened in the face of the dollar compared to other currencies.
"This year’s projected depreciation is not higher than the previous years. It is still around four percent while the Central bank’s reserve will continue to be 4.6 months of import cover,” he said.
He, therefore, allayed fears over the Franc depreciation and rush for dollars given that it is usually in these months that traders start importing goods, which drives the demand for forex.