`Price in Kwacha not foreign currency’

COMPANIES pricing goods and services in dollars should be stopped to strengthen the Kwacha and help the local currency recover, Policy Monitoring and Research Centre (PMRC) has said.

PMRC Executive Director Bernadette Zulu said yesterday the Bank of Zambia had guided on several occasions before, and in line with the Bank of Zambia Act, that the kwacha was the legal tender in Zambia and this should be respected. “One of the suggested ways that we may need to interrogate in order to stabilise the kwacha exchange rate is for the central bank to put in place measures to prevent business houses that are pricing locally traded goods and services in foreign currencies, especially the US dollar,” Ms Zulu said. “Therefore, all domestic transactions are required to be priced and settled in Kwacha. Unauthorized entities that engage in some form of foreign currency trading need to stop such practices as they are contravening the Banking and Financial Services Act (BFSA). If left unchecked, the practice has the potential to increase the demand for foreign exchange and intensify pressure on the exchange rate. Pricing in foreign currency implies that businesses are adjusting their prices to reflect the extent of the movements in the exchange rate and yet most of their operating costs are not in foreign currency. “The adverse effects of pricing and paying in foreign currencies are mainly felt by the general public rather than business houses as the former has no ready means of hedging against currency depreciation,” she said. Mrs Zulu said measures to prevent business houses from quoting locally traded goods and services in foreign currencies and thus, encourage pricing in kwacha could be achieved through some legal provisions similar to the SI 33 but with some dollar equivalency. The absence of the legislation which explicitly prohibited the use of the dollar has left traders free to determine their prices in the foreign currency,” she said. Mrs Zulu said, “But for such measures to be effectual, the Bank of Zambia through its monetary policy conduct need to minimise the current exchange rate volatility, and ensure that inflation is contained with the targeted bands of 8-10 percent in an effort to protect businesses from exchange rate losses.