why do the drc and the congo share a currency
Bon Marche is one of the busiest neighborhoods in Kinshasa, capital of the Democratic Republic of Congo (DRC). It is crammed with shops, bars, banks and money changers. The money changers operate from wooden tables set up on the street with only an umbrella to protect them from the elements. They began plying their trade only a few months ago when the local currency, the Franc Congolais, or Congolese franc, began to depreciate substantially against their dollar. A year ago the Congolese franc was trading on foreign currency markets at around 930 to the dollar, now it is trading at just under 1,000 to dollar. Ekanga Papy, a local shop owner, watched the money changers move in. "There are some places where the dealers are lined up along the street. At such places, you have six even ten tables where people are exchanging money," he told DW. Money changers generally make a profit by selling currency at higher rate than that at which they buy it, in addition to any commission or fee they may charge. One of the money changers in Bon Marche is Ngundia Jerry. He returned to street currency trading a month ago after a break of three and a half years. "I resumed the business seeing that it is providing good profits as the national currency has been falling against the US dollar," he told DW. If the rate of the Congolese franc to the dollar is stable, people are in no rush to sell one currency and buy another. "When there is stability there is no benefit," said Jerry, speaking from the trader's perspective.
But if people want the security of the greenback, then trade picks up. Papu Pateli used to own a shop, or bureau de change, for currency exchange in Kinshasa. He said he left the business in 2013 because the income he earned was not up to expectations. "Many money changers are attracted by the rotation," he told DW. "When you buy money in the morning, you sell it after one to three hours," he said. Money changing has the lure of a fast turnover and a possible profit on every transaction. Foreign currency reserves After years of stability, the Congolese franc came under pressure when the DRC's foreign currency reserves declined. Reuters reported in June that the DRC's central bank only had enough reserves to cover about five weeks' worth of imports. The DRC's oil and mining sectors account for around 98 percent of export earnings and they have been badly hit by the downturn in the commodities market. In May the government responded by proposing that the current budget be slashed by 22 percent. But the International Monetary Fund's (IMF) representative in the DRC, Nicholas Staines, said spending cuts could depress economic growth, leading to further depreciation of the Congolese franc and higher inflation. The dollar has been used as a second currency in this part of Africa since the 1990s. In 1994, when the DRC was known as Zaire and run by autocrat Mobutu Sese Seko, the economy collapsed.
Inflation had reached an all time high of 24,000 percent. Patrice Chitera in Kinshasa contributed to this report
Country Overview The Democratic Republic of the Congo (DRC), the largest country in Francophone Africa, has vast natural resources and spans a surface area of 2. 3 million square kilometers. Fewer than 40% of the nearly 77 million inhabitants live in urban areas. With 80 million hectares of arable land and over 1,100 minerals and precious metals, the DRC has the potential to become one of the richest countries on the African continent and a driver of African growth if it can overcome its political instability. Political Context The DRC is still recovering from a series of conflicts that broke out in the 1990s creating a protracted economic and social slump. Joseph Kabila has been head of state of the DRC since 2001. Presidential and parliamentary elections planned initially for November 27, 2016 have been delayed due to an outdated electoral register. Efforts to defuse the political crisis into which the country has since been plunged have been made by the African Union facilitator, Mr. Edem Kodjo, and the Congolese episcopate, acting as mediators between the Government and the opposition parties. A new agreement, signed on December 31, 2016, provides for a transition period during which power will be exercised jointly by President Joseph Kabila and the opposition, until presidential elections are held in late 2017.
The agreement also stipulates that the president will not seek a third term. Moreover, the signatories agreed that no revision of the Constitution will be attempted in that period. However, this agreement never entered into force. Since its signature, the president has nominated two prime ministers who have not been recognized by the opposition. Furthermore, the Independent National Electoral Commission (CENI) believes that the elections will not be able to take place in late 2017 as planned since revision of the electoral register has not been completed. Economic Overview After sharply increasing to almost 9% in the 2013-2014 period, the GDP growth rate (excluding inflation) decelerated to 6. 9% in 2015, then to 2. 4% in 2016, its lowest point since 2001. This slump is mainly due to declining prices and a shrinking global demand for raw materials exported by the country, particularly of copper and cobalt, which account for 80% of its export revenue. This economic shock led to a deterioration in external accounts and a downturn in the countrys exchange rate in 2016, as well as a 31% drop in the exchange rate of the Congolese franc against the dollar, which fueled runaway inflation of almost 24%. In 2017, growth is expected to reach 2. 6%, driven by the moderate increase in commodity prices and national mining production. However, the national currency is expected to continue its decline against the dollar as the rate of inflation increases.
Public finances also deteriorated in 2016, with a growing fiscal deficit of -1. 6% of GDP against -0. 2% in 2015. The drop in export revenue was reflected in a decrease in State revenue. Lacking access to domestic and international financial markets, the Government had to drastically reduce public expenditure to contain the deficit and limit monetary financing by the Central Bank of the Congo. The Government has launched sectoral reforms to strengthen governance and transparency in the extractive industries (forestry, mining, and oil sectors) and to improve the business climate. Currently, almost all contracts signed by the Government are accessible to the public. The DRC participates in the Extractive Industries Transparency Initiative (EITI) and regularly publishes reports on revenues from natural resources. However, systematizing the procedures necessary for a competitive process in awarding mining, oil, and forestry contracts requires additional efforts on the part of the Government. Social Context Despite a decrease in the poverty rate, from 71% to 64% between 2005 and 2012, the DRC still ranks among the poorest countries in the world, at position 176 out of 187 countries, on the most recent Human Development Index calculated by the UN (2015). The United Nations estimates that there are some 2. 3 million displaced persons and refugees in the DRC and 323,000 DRC nationals living in refugee camps outside the country. Last Updated: Dec 05, 2017
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