Why does the US Dollar to Zambian Kwacha exchange rate matter?
The local currency in Zambia is the Zambian Kwacha and all services and goods are priced in Kwacha. Since we receive our support in US Dollars it is necessary for us to change our Dollars into Kwacha to buy groceries or pay our bills.
When we go to trade our Dollars into Kwacha at the bank they find out what the exchange rate is for that day and then give us the appropriate amount of Kwacha for our Dollars. The exchange rate is set daily by the Bank of Zambia, the main government bank. (For an explanation of how the exchange rate is determined click here.)
Jan. – Sept. 2005 $1 = 4800K |
Oct. – Nov. 2005 $1 = 4500K |
December 2005 $1 = 3500K |
February 2006 $1 = 3100K |
Price in US Dollars |
|||||
Price in Zambian Kwacha |
$1 = 4800K |
$1 = 4500K |
$1 = 3500K |
$1 = 3100K |
|
| Milk (1 gallon) | 19,000.00K |
$3.96 |
$4.22 |
$5.43 |
$6.13 |
| Bread (1 loaf) | 3,000.00K |
$0.63 |
$0.67 |
$0.86 |
$0.97 |
| Eggs (1 dozen) | 6,500.00K |
$1.35 |
$1.44 |
$1.86 |
$2.10 |
| Hamburger (1 pound) | 10,810.00K |
$2.25 |
$2.40 |
$3.09 |
$3.49 |
| Hot Dogs (8 in a pack) | 9,580.00K |
$2.00 |
$2.13 |
$2.74 |
$3.09 |
| Flour (5.5 pounds) | 12,830.00K |
$2.67 |
$2.85 |
$3.67 |
$4.14 |
| Sugar (4.5 pounds) | 8,850.00K |
$1.84 |
$1.97 |
$2.53 |
$2.85 |
| OJ (1 quart) | 8,400.00K |
$1.75 |
$1.87 |
$2.40 |
$2.71 |
| Tuna (1 can) | 6,550.00K |
$1.36 |
$1.46 |
$1.87 |
$2.11 |
| Green Beans (1 can) | 7,950.00K |
$1.66 |
$1.77 |
$2.27 |
$2.56 |
| Apples (10 Red Delicious) | 11,200.00K |
$2.33 |
$2.49 |
$3.20 |
$3.61 |
| Chicken (whole) | 20,000.00K |
$4.17 |
$4.44 |
$5.71 |
$6.45 |
| Cheese Slices (10 slices) | 14,980.00K |
$3.12 |
$3.33 |
$4.28 |
$4.83 |
| Rice (2 pounds) | 7,900.00K |
$1.65 |
$1.76 |
$2.26 |
$2.55 |
| Pasta (1 pound) | 5,980.00K |
$1.25 |
$1.33 |
$1.71 |
$1.93 |
| Oreo Cookies (16 cookies) | 8,500.00K |
$1.77 |
$1.89 |
$2.43 |
$2.74 |
| Corn Flakes (small box) | 14,750.00K |
$3.07 |
$3.28 |
$4.21 |
$4.76 |
| Electricity (1 month) | 550,000.00K |
$114.58 |
$122.22 |
$157.14 |
$177.42 |
| Phone Bill (1 month) | 200,000.00K |
$41.67 |
$44.44 |
$57.14 |
$64.52 |
| Internet Svc (1 month dial up) | 95,000.00K |
$19.79 |
$21.11 |
$27.14 |
$30.65 |
| Mail one letter to US (airmail) | 3,300.00K |
$0.69 |
$0.73 |
$0.94 |
$1.06 |
| Toilet Paper (4 rolls) | 13,950.00K |
$2.91 |
$3.10 |
$3.99 |
$4.50 |
| Laundry Soap (20 loads) | 20,900.00K |
$4.35 |
$4.64 |
$5.97 |
$6.74 |
| Disp. Razors (5 pack) | 11,980.00K |
$2.50 |
$2.66 |
$3.42 |
$3.86 |
| Shaving Crème (1 can) | 30,900.00K |
$6.44 |
$6.87 |
$8.83 |
$9.97 |
| Dish Wash Soap | 11,900.00K |
$2.48 |
$2.64 |
$3.40 |
$3.84 |
| Cement (110 pounds) | 39,000.00K |
$8.13 |
$8.67 |
$11.14 |
$12.58 |
| Motor Oil (1 quart) | 10,500.00K |
$2.19 |
$2.33 |
$3.00 |
$3.39 |
| Diesel (1 gallon) | 18,000.00K |
$3.75 |
$4.00 |
$5.14 |
$5.81 |
| Unleaded (1 gallon) | 26,000.00K |
$5.42 |
$5.78 |
$7.43 |
$8.39 |
How the Bank of Zambia sets the exchange rate is a very complicated issue and quite difficult to understand. I am not an expert in this topic, but this is how I understand it to work.
The exchange rate depends a lot on how many US Dollars are in the country and how much in demand they are. If there are plenty of Dollars available then the value of the Dollar goes down, and the exchange rate toward Kwacha goes down too (we get fewer Kwacha per Dollar). If there are fewer Dollars in the country then the value in Kwacha goes up (we get more Kwacha per Dollar).
In December of 2005 Zambia had $7,500,000,000 of their national debt wiped out by the United States, Europe and the World Bank. This left Zambia with a national debt of just $500,000,000. The US Dollars that would have gone to pay the debt and interest owed is now just sitting in the bank which makes the US Dollar not in demand.
Also, the exchange rate is influenced by the price of copper. Zambia’s main natural resource is copper deposits throughout the country. When the price of copper is up, the value of the Dollar here goes down. This is because by Zambian law the copper mining companies must deposit at least half their profits in Zambian banks. The mining companies mainly deal in Dollars. So when the mining companies are making lots of money there are lots of Dollars in the bank. When the price of copper goes down, then the profits of the mining company also go down and fewer Dollars are put in the bank.
