The Rwandan franc is the second strongest currency in the East African region after the Kenyan Shilling, currently exchanging at one US dollar at an average of Rwf593 on the foreign exchange market.
The ushering in of a new millennium caused the franc to depreciate against the dollar, but since then, it has stagnated and altered between Rwf500-600 for a dollar.
In 1995, a dollar cost only Rwf262, peaking at Rwf393 in 2000. However, in 2004, it tremendously depreciated to Rwf574 against the dollar; owing to low industrialisation and local production that offered Rwanda a small base for export alternatives.
To curb the inflation which had started to affect the currency’s value, the government endeavoured on industrialisation strategies and provided incentives to private investors.
At the same time, the central bank sought to reduce currency on the market by implementing a number of pecuniary policies and revised its rate of lending to banks.
This caused the franc to stabilise and withstand external shocks from regional and international economic bottlenecks. Since then, the highest a dollar ever cost against the franc is Rwf610, which is way back in 2005.
Today, the region is experiencing fiscal challenges that can be marginally blamed on the swift revolutions in the Maghreb. East Africa totally depends on fuel as its economy driver, and when the cost of fuel is slightly adjusted, it affects the prices of other goods as well.
The political revolutions in the Maghreb drastically affected the transportation costs of fuel imports from the Maghreb to East Africa, causing a hike in the cost of other products particularly, food.
Although such trends led to an increase in headline inflation across Africa, in Rwanda, inflation hit a record low of 0.2 per cent in December 2010 before rising to 4.1 per cent in March 2011 and jumping to 5.8 per cent in June. This is is a decent trend compared to other affected countries.
To further boost the francs performance, the central bank reported that since last year, its priority was fixed on the implementation of monetary and exchange rate policies that target the Reserve Currency and Net Foreign Assets (NFA), to ensure that Rwanda purchases commodities at a marginally lower rate than its neighbours, borrow money at a better rate and also improve its balance of payments.
“Quarterly targets set for end June 2011 were Rwf137.5 billion for Reserve Currency and Rwf391.2 billion for NFA, which goals were all met,” the central bank said in its monetary policy and financial satiability statement released last week.
This is a significant accomplishment that shields the economy.
However, for the Rwandan franc to sustainably remain a strong currency, the government must embark on a strong industrialisation process for local supply to meet demand without relying on heavy importation.
It should as well insist on a tight annual budget and set strict measures to significantly reduce its external debt each year.
As long as the above is reviewed, with sacrifice and determination from both the public and private sector, the Rwandan franc will maneuver through the hard economic times and stay strong possibly helping to set the pace for the launch of a stronger East African single currency.