Amid continuous depreciation of the Dalasi
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The Gambia suspends Ria Financial Services and two other money transfer operators, as national currency continues to weaken. (Photo Credit: All In London) |
A CBG statement said the three financial bureaus are no longer allowed “to operate in the country’s foreign exchange market from June 21, 2013 until further notice”.
The Gambia’s financial market regulator labeled as “illegal” any foreign exchange transactions including sale and purchases through these money transfer operators (MTOs).
Despite this latest directive, the CBG claims the transactions market for foreign exchange remains broadly consistent with economic fundamentals.
However, it noted that the speculative activities of operators in the local foreign exchange market continue to “exert pressures” on exchange rates, resulting in continuing depreciation of the Gambian dalasi.
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For the past year, the dalasi continues to loss value against major foreign currencies like the US Dollar, the British Pound and the Euro.
“As recent as May 2013, it depreciated against the British Pound by 12.62 per cent, the US dollar by 11.87 per cent and the Euro by 12 per cent,” according to the economic think tank, the International Monetary Fund, IMF.
IMF’s Mission Chief to The Gambia, David Dunn, said although inflation has picked up during 2013, it is projected to stabilize at around 5 per cent a year by 2014.
Late last month, the CBG announced it has raised by two per cent (to 12 per cent) the amount of money that commercial banks can hold as reserve to curb rising inflation.
That directive also noted it would address the amount of cash commercial banks must not loan out to customers.
The Bank’s Monetary Policy Committee, MPC, said the higher the reserve requirement is set, the less cash banks will have to loan out, leading to lower money in circulation.
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| Gambian Dalsis (photo credit: Wikipedia) |
This is intended to withdraw excess Dalasi liquidity out of the economy and thus help preserve price stability, the MPC explained.
On June 18, the IMF claims the CBG’s move to tighten monetary policy has helped to stem the rate of depreciation, but said that this is not enough to stabilize the depreciation of the dalasi to enable it start appreciation.
Last Wednesday, the CBG announced it will reinforce the MPC’s stance and restore stability and confidence in the foreign exchange market by increasing the “required reserve ratio” further by three percentage points (to 15 per cent) as of June 24, 2013.
According to the IMF, reducing government’s domestic borrowing to 1½ per cent of that total value of goods and services that The Gambia produces in a year (Gross Domestic Product in 2013), will be critical to eventually ease the current pressure on inflation and interest rates, and to stabilise the national currency.
Written by Modou S. Joof
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Market liquidity clearly explains the Forex capital market and when discussing market liquidity, this is one imperative characteristic that ought to be an aspect of a market that is as unpredictable and as unusual as the Forex capital market.
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