There is no complete lack of the US dollar in Rwanda, but limited availability of the currency has put pressure on the exchange market, while de-dollarisation, or reducing reliance on the dollar for international transactions, is still far from reality, the Governor of the National Bank of Rwanda, John Rwangombwa, has said.
Rwangombwa made the observations on November 27, while presenting the central bank's annual report for the financial year 2022/2023 report to Parliament.
During the session, MP Pie Nizeyimana talked about the difficulty in getting dollars from forex bureaus.
"Dollars are expensive and scarce. It seems there is mafia [in dollar trade] because you can enter a forex bureau and they do not give them to you, yet they give them to another person," he said, wanting to know what the central bank was doing to address this issue.
On factors that led to that situation, Rwangombwa cited a need for more foreign currency for imports that was prompted by Rwanda's accelerated economic growth, and poor agricultural yields in the country which resulted in increased imports of foodstuff, while prices at the international market went up. That resulted in a rise in the dollar value and delays in getting the currency, he added.
Another factor, he said, was the relatively delayed tourism industry recovery [from the Covid-19 pandemic impact], which contributed to the limited availability of foreign currency (mainly the dollar).
This situation, he pointed out, put high pressure on the currency exchange market - indicating that tourism is one of the sources of foreign revenues for the country, mainly the dollar.
While the country's economy in general opened up and registered a recovery, resulting in an increase in goods people need, the tourism sector lagged behind.
"In 2021, the economy recorded a high growth, but tourism recovered slowly as the world opened up," Rwangombwa said.
"For tourism revenues, it is this year that we are going to reach the level at which we were in 2019," he pointed out.
Rwangombwa said that currently, the central bank usually sells $5 million to banks every week, but, because of the reduced availability of the dollar, the bank doubled the amount to $10 million.
He said there are some foreign currency [especially the dollar] dealers who wanted to profiteer from its limited availability compared to the demand.
In response, he told parliamentarians that the central bank carried out an inspection of forex bureaus' operations and suspended six forex bureaus, while others were charged fines in order to prevent malpractices at the currency exchange market.
"Pressure exists, but there is not a complete lack of foreign currency," Rwangombwa said, adding that those who often face delays in getting it [mainly the US Dollar] are people who need a lot of money - millions.
Effects on franc depreciation
According to the central bank report, the Rwandan Franc depreciated significantly by 8.76 per cent against the US Dollar in 2022/23, a faster decline than the 3.78 per cent registered in 2021/22, according.
This depreciation can be explained by the widening trade deficit, but also by the strengthening of the dollar following the US Federal Reserve's monetary policy tightening.
Rwangombwa said this year under review, there were 'unusual circumstances' - referring to factors including limited revenues from tourism - indicating that, normally, franc depreciation was the case but did not exceed 6 per cent.
Given the dollar supply gap, he said that franc depreciation is expected to reach 17 per cent by the end of 2023, according to available data.
This will be a record-high franc depreciation as the highest registered depreciation was 9.7 per cent in 2016.
No alternative to the dollar yet
Referring to currency depreciation vis-à-vis the dollar, MP Deogratias Bizimana Minani said there are countries that have strategies to cut reliance on the dollar and wanted to know whether Rwanda plans to do the same to address the 'worrying issue'.
Rwangombwa said de-dollarisation - reducing reliance on the US Dollar as a reserve currency, or medium of exchange - is still just a talk.
"No action to make that a reality has been taken yet to help any country to reduce the use of the US Dollar. Until now, it is the dollar that is used in most international transactions," he said, adding that even setting up a BRICS currency as an alternative, is still 'words', 'a wish'.
BRICS is an intergovernmental organisation comprising Brazil, Russia, India, China, and South Africa.
On possible solutions to the problem, Rwangombwa said that strategies include increasing foreign currency (revenues) entering the country, such as through increasing the country's exports, as well as locally produced goods.
This, he said, is the only reliable way to narrow the gap that causes persistent depreciation.
According to the International Monetary Fund (IMF), the dollar dominates every aspect of global finance, including settling a majority of international financial transactions.
Nearly 60 per cent of the world's central banks' foreign exchange reserves, essentially their rainy-day funds, are invested in dollar-denominated assets, and almost all commodity contracts, including those for oil, are priced and settled in dollars, information from IMF shows.