Who's hiding dollars?

A net salary in August 2013 of US$1000 paid in francs at an exchange rate of Rwf650 then, was worth Rwf650,000. Today, someone earning US$1000 a month, at the prevalent market exchange rate, is taking home at least Rwf750,000, an increment of Rwf100,000 or slightly more than US$130. A friend who runs a children’s daycare centre presents another scenario; she pays a monthly fee of US$600 for rent and every month, she has to buy dollars at the prevailing exchange rates to pay the landlady. In 2013, she needed Rwf390,000 to pay her rent; this month, she needed almost 490,000 to buy the same amount of dollars although the landlady hasn’t officially increased rent. Experts project the dollar is likely to strengthen further against regional currencies including the franc which spells trouble for people like my daycare friend who will feel the pinch as they seek more francs to buy the same amount of dollars to settle their operational costs. To fill her financial gaps, my friend is considering increasing tuition fees by at least 10 percent in order to transfer her exchange rate burden to parents, the consumers of her service. Although cost transfer to consumers is a standard practice in business, most consumers have nowhere to transfer their extra-burdens, the solution is always to persevere and pay through the nose or borrow more and get trapped in the vicious debt cycle. This will be the case for parents if my friend’s daycare decides to hike fees to fill the gap caused by the negative exchange rate; if they can’t pay or borrow more, the last option would be to seek a cheaper daycare which would also mean inferior services, unfortunately. It’s really a shame that we toil to earn our salaries in local currencies only to be ordered to pay for other services in dollars. The problem is that even if salaries were fed on steroids, their growth is generally stunted compared to utility bills and other services such as school fees, rent and taxes. This past week things got terribly out of control when people known to me had to fork out up to Rwf900 to buy a single dollar; forex bureau agents attributed their high exchange rates to scarcity of dollars on the market a claim central bank flatly rejects. Who’s hiding dollars? Let’s face it, as long as service providers continue to demand that we pay them in dollars, the current apparent scarcity of dollars will persist for the foreseeable future. For an economy like ours that is a net importer of almost everything, we need to be careful how we spend our hard earned foreign currency, especially after I learnt this week that the amount of dollars this country earns from international trade can only cover less than 20 percent of the total import bill. That means either our export earnings have dropped or our import bill has increased, or it could mean both. So what should we do as a country, to ease this exchange rate? It’s quite a simple suggestion but one that I know would be difficult to implement. I suggest the Central Bank Governor raises his voice on the use of dollars to pay for domestic services especially apartments. That’s because the unnecessary demand for dollars to pay for services within the economy has constrained their limited supply in the process hurting the value of the local currency. With the country earning less foreign currency from exports due to poor international commodity prices, limited foreign direct investment and weak numbers for international tourism, we have no option but to regulate the use of dollars. If people are going to be earning in francs but required to pay for services in a foreign currency, how about we consider realigning salaries to the dollar rate? Of course that’s unreasonable, so let’s stick to francs. The other way out would be to limit the importation of certain consumer products, especially those that we can produce locally, as well as luxurious commodities such as expensive liquors in order to reduce Rwanda’s import bill. A more advanced solution would be for EAC countries to negotiate a currency pact that would enable traders to settle their obligations using their respective local currencies and circumvent the need to buy dollars or other foreign currencies. These are just ideas that sprouted into my head so you may not disparage me if they sound unreasonable, am simply trying to break all of us free from this dollar slavery.

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Who's hiding dollars?