Bank of Zambia Draft Currency Regulations 2024: Impact on Real Estate and Economy
The Bank of Zambia announced its draft Currency Regulations for 2024, aiming to combat dollarization and strengthen the Kwacha’s status as the sole legal tender for domestic transactions in Zambia. The regulations are open for public consultation and seek to address concerns around dollarization, which could undermine the local currency’s relevance and demand, impacting its role as a medium of exchange and store of value. The regulations aim to reinforce the efficacy of the country’s monetary policy and will be formalized through a Statutory Instrument, establishing the Kwacha and Ngwee as the sole legal tender for all domestic transactions.
Key Changes Under the Draft Regulations:
Under the new regulations, quoting, demanding, paying, or receiving payments in foreign currency for domestic transactions is strictly prohibited. This aims to reinforce the use of the Zambian Kwacha for all domestic economic activities, thus reducing the reliance on foreign currencies and promoting the stability of the national currency.
Conversion of Agreements and Contracts:
- All domestic transactions must be conducted in the domestic currency. This means that any contract or agreement related to a domestic transaction currently denominated in foreign currency must be converted to the equivalent amount in Zambian Kwacha.
- Existing contracts or agreements denominated in foreign currency will be converted to Kwacha at the Bank of Zambia’s daily average mid-rate. Parties involved in such contracts will have up to one year from the commencement of these regulations to transition fully to compliance.
Offences Related to Regulations:
- Any person who contravenes these regulations commits an offence and, upon conviction, may face a fine not exceeding one million penalty units, imprisonment for up to ten years, or both.
- The Bank of Zambia has the authority to impose administrative sanctions for violations of these regulations.
Exemptions from Regulations:
Certain domestic transactions are exempt from the Statutory Instrument, including:
(a) Payment of a sum of money in or towards the satisfaction of a foreign currency liability due, including interest, to and from a financial service provider;
(b) Taxes paid in foreign currency to the Government;
(c) Payment for tolling services in the mining sector, including inter and intra-mine sales of copper;
(d) Payment by non-resident foreigners for tourism services offered by tourism enterprises registered under the Tourism and Hospitality Act, 2015;
(e) Trading of electricity in regional power pools.
Potential Implications for the Real Estate Sector and Markets:
The implementation of the Bank of Zambia’s draft Currency Regulations could have significant implications for the real estate sector and markets, particularly through the process of de-dollarization. Historical data from other countries that have enacted similar measures, such as Ghana and Kenya, reveals a mixed impact.
Increased Volatility in the Short Term: A shift away from the US dollar could introduce exchange rate fluctuations, impacting the stability of real estate prices. As transactions move to the Kwacha, there may be an initial period of volatility until the market adjusts to the new norm.
Potentially Lower Investment Inflows: Foreign investors, who are accustomed to the stability of the US dollar, might be hesitant to invest in the Zambian Kwacha-dominated economy initially. This could lead to a decrease in investment capital in the short term, as investors wait to see how the new regulations impact the market.
Impact on Local Buyers: If the local currency weakens, purchasing property denominated in Kwacha could become more expensive for domestic buyers, especially those who previously used foreign currency for transactions. This could lead to a temporary slowdown in the real estate market.
Potential Opportunities: On the other hand, de-dollarization could create opportunities for local buyers. If real estate prices are adjusted to reflect the Kwacha value, property could become more affordable for locals – especially the Zambian Diaspora, boosting domestic ownership and investment in real estate.
The overall impact of de-dollarization on the real estate sector will depend on various factors, including the strength of the local economy and the effectiveness of the Bank of Zambia’s monetary policy. By learning from the experiences of countries like Ghana and Kenya, Zambia can mitigate some of the potential challenges and leverage the benefits of a more stable and predictable real estate market.
The Bank of Zambia’s draft Currency Regulations of 2024 represent a significant step towards fortifying the country’s monetary policy and protecting the integrity of the Zambian Kwacha. By mandating the use of the Kwacha for all domestic transactions and prohibiting the use of foreign currencies, these regulations could curb the adverse effects of dollarization and bolster financial stability. The inclusion of specific exemptions will ensure that critical sectors and necessary transactions remain unaffected, providing a balanced approach to economic regulation.
Through a thorough peer review process, the Bank of Zambia has drawn from the experiences of neighbouring countries and beyond, implementing proven strategies to maintain economic sovereignty and stability. As Zambia moves towards full implementation of these regulations, it joins a growing list of nations committed to preserving their monetary policy effectiveness and the national identity of their currency. The success of this initiative will depend on robust enforcement and the collective commitment of all stakeholders to uphold the principles outlined in these regulations.
Image by Satheesh Sankaran from Pixabay
