In the first half of 2023, the Rwandan franc depreciated by 8.8 per cent against the US dollar, amidst global economic hurdles that continue to affect Rwanda’s international trade.

According to central bank Governor John Rwangombwa, this is the first time in 20 years that Rwanda recorded a double-digit depreciation, with an overall total of more than 12 per cent currently.

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Over the past years, Rwanda’s trade deficit continued to widen with recent figures of 23 per cent in the period under review. The trade deficit, calculated as the difference between import and export, was drawn from an increase of 18.5 per cent in import bills against 11.2 per cent increase in export earnings.

With the recovery of domestic activities such as manufacturing, construction, and trading, the need for the dollar –which remains a major medium of commodity exchange globally –went up high and so did its value on the global stage.

On the other hand, NBR’s international reserves reached a level of 4.4 months of expected imports of goods and services, which is higher than the benchmark.

While many would wonder why the central bank does not use the reserve to curb the depreciation, Rwangombwa explained that the initial purpose of reserves is not to buffer depreciation because it happens depending on the state of the market, rather, it is kept only for emergent cases. "For instance, during Covid-19 period, we moved from selling four million dollars per week to 15 million per week, that was an unusual situation. We had to use some of the reserves to keep the market operational,” he said.

Even in this period, Rwangombwa added, "We increased the supply a little bit to around 10 million per week.”

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As this depreciation is mainly attributed to the import and export market, he said they project the exchange market to stabilise in 2024, hence, no significant reason to dip in the reserve as of now.

Latest figures from the central bank indicate that the Rwandan franc lost value against other major currencies, including a decline of 13.9 per cent against the pound, 10.7 per cent against the euro, and a lower appreciation of 0.4 per cent against the yen, after respective appreciation of a year before.

Within the region, the currency appreciated by 4.5 per cent against the Kenyan shilling and by 20.2 per cent against the Burundian franc but weakened by 5.1 and 10.0 per cent against the Tanzanian shilling and Ugandan shilling, respectively.

However, in real terms, the franc actually gained 1.3 per cent value due to high domestic inflation outpacing the combined effect of weighted foreign inflation and nominal effective depreciation.

Major economies, including Brazil, Russia, India, China, and South Africa, collectively known as BRICS—and newly added Saudi Arabia, Iran, Ethiopia, Egypt, Argentina and the United Arab Emirates—strive to reduce their dependence on the US dollar through a process called de-dollarisation.