Angola devalued its official currency the Kwanza at the end of 2015 in a bid to bridge the gap between the official rate and parallel market rate. By January 4th, the Kwanza had lost as much as 17% representing its biggest drop since September 2011 according to Bloomberg. The currency traded at 134.573 Kwanza to the dollar on Dec. 31 compared to 154.835 Kwanza against the dollar as at January 4th 2016. The exchange rate had actually dropped to as low as 158.7380 Kwanza to the dollar before clawing back. The currency is now officially down 50% since January 2015.
Despite the devaluation, the disparity between the parallel market rate and the official rate was as clear as night and day. The currency was trading at between 270 and 280 per dollar at the black market. The country just like Nigeria, is facing a currency crisis following the 65% drop in the price of crude and the threat of Iran coming back to the crude market.
The Central Bank of Nigeria has also come under pressure from economist seeking that it devalues the currency in response to the widening disparity between the black market and the interbank rates. This is despite the CBN devaluing twice within a space of 12 months by about 21%. Some have also called for the CBN to float the currency instead opining that it better serves the economy and gives the naira an opportunity to discover its real price.
The situation in Angola is perhaps an indication of how brutal devaluation can be on one hand and how it is not in any way a solution to any country’s currency crisis. The country night now have to devalue by another 26% if it is to be at par with the black market rate. Just like Nigeria, African countries face a dollar scarcity due to the drop in oil revenue and have adopted several policies aimed at controlling demand. Nigeria’s CBN has made it clear that it will not be devaluing its currency and will continue with its demand side management policies of restricting dollar purchases.
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