Zambia Fighting `Phantom' in World's Worst Currency Plunge

  • Market structure under central bank scrutiny as kwacha plunges
  • All options on table as currency's decline fuels price rises

The Zambian kwacha’s plunge, the world’s biggest exchange-rate depreciation this year, is being fueled by “phantom demand” for foreign currencies, according to the deputy governor at the nation’s central bank.

“What’s clear is there is a mismatch between the way the market is behaving and the fundamentals in the market,” Bwalya Ng’andu said in an interview in London. “The market is fueling itself.”

While Ng’andu said it’s too early to explain the cause of the mismatch, it may prompt the central bank to look at the way the market is structured.

“It’s not something we can ignore,” Ng’andu said, adding that “all options” are on the table. “What’s happened is completely unprecedented.”

Among the problems created by the kwacha’s 48 percent plunge this year is the increased cost of consumer goods and manufacturing, Ng’andu said.

The depreciation offers an “opportunity” to plot a different direction in the economy, diversifying the sources of foreign-exchange revenue away from copper, he said. Copper accounts for 9 percent of gross domestic product but over 70 percent of foreign-exchange revenue. Tourism is among the sectors that should make a bigger contribution, Ng’andu said.

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