African currencies have undergone tremendous volatility over the past year, with significant depreciations – as well as some surprise recoveries – making headlines. In an article for GTNews, Crown Agents Bank’s deputy treasurer, Theresa Henshaw, explains that the background to such instability has been equally fickle raw material prices. These have dampened growth and put pressure on exchange rates in Africa’s commodity export-dependent economies.
In the article, “The African currency rollercoaster ride”, Henshaw notes that currency volatility creates real headaches for central banks across the continent. In addition to dealing with fiscal deficits and the prospect of increased external debt obligations, central banks must now grapple with the adverse effects of rising inflation: imports have become more expensive, and crucial foreign exchange reserves have diminished.
For companies looking to operate in Africa, the shifting foreign exchange landscape offers no less of a challenge. Treasurers could find themselves with increased expenses for their cross-border trade and day-to-day operations, as well as uncertain outlooks for their African investments. Henshaw shows that while some may prefer to stick to those “safe-haven” countries still enjoying relative currency stability, those treasurers that can count on a banking partner with in-depth knowledge of local markets and the ability to manage foreign-exchange risk will be best placed to deal with volatility in the future.
Read the article here.