Franc boosted by speculation and surplus

The Congolese franc strengthened considerably against the US dollar last week, moving rapidly from the level at which it had steadied, after being floated in late May from a rigid and inflated exchange rate system, Reuters reported. Since then, the Congolese franc has traded steadily at around 310 per US dollar. However, between 13 - 16 July, the franc surged from 290 to 200 against the dollar, and on Friday opened at 221.8 per dollar. Possible causes of the dramatic change was widely debated. Central Bank sources said the volatility was largely due to speculation by importers trying to limit import duties, which vary in line with the exchange rate. “It is obvious that in a limited market like this one, where daily turnover of dollars is between US $500,000 and US $1 million, importers with large amounts of currency can create fluctuations,” one central bank source was quoted as saying. The government, however, said the stronger franc reflected healthier public finances. Finance Minister Matungulu Mbuyamu Ilankir noted that the government had run a budget surplus for the past two months instead of a deficit, which the treasury would be forced to finance by issuing cash. Analysts said that better budgetary control alone was not enough to justify or sustain the franc’s rise.