Angola's Currency Collapses To Record Low As "Hyperinflation Monster" Looms Over Africa

Tyler Durden's picture

Just two weeks ago we warned of the looming "hyperinflation monster" in Africa with the continent appearing to be running out of dollars as some of Africa’s largest economies, including Nigeria, Angola, Ethiopia and Mozambique, are restricting access to the greenback to protect dwindling reserves. Specifically we warned of Angola's already-soaring inflation hampering its ability to 'adjust' its currency towards its black market 'reality'. But that did not stop the central bank devaluing Kwanza by 15% over the weekend - the most since 2001 - to record lows as crude prices crush their economy.

 

Here's what we said two weeks ago: to be sure, African central banks have a simple way out: stop defending their currencies, and let the market determine the fair value. The problem with this approach is that it promptly leads to an immedate devaluation of the currency, and without fail, hyperinflation and social unrest. The latter is not an option for many African countries where inflation is already running red-hot in the double digits.

Angola, which is Africa’s second-biggest oil producer after Nigeria, has also been using its dollars to prop up its currency, the kwanza. Its central bank says it plans to stay on that course.

 

“If we devalue, it will have a huge impact on inflation because most of our food is imported,” said Gualberto Lima Campos, deputy governor for the Central Bank of Angola. The country has a 14% annual rate of inflation.

And now, it seems Angola is willing to face the hyperinflation and social unrest as it devalues the Kwanza to record lows. As Bloomberg notes, the central bank, known as the BNA, started managing foreign-exchange sales by commercial lenders to businesses in November as a response to the limited supplies of U.S. currency.

Angola’s currency fell the most since September 2001 after the central bank allowed it to devalue as the drop in oil prices cut the main source of government revenue and export earnings.

 

The kwanza slid 15 percent to an all-time low, trading at 158.7370 against the dollar as of 12:35 p.m. in the capital, Luanda. The drop followed a 24 percent retreat in 2015, its eighth year of declines and the most since 2003.

 

The kwanza was sold at an average rate of 156.386 last week compared with 135.988 a week earlier, the Luanda-based National Bank of Angola said on its website on Dec. 31. That’s the biggest single devaluation since policy makers started cutting the currency’s exchange rate in several moves during the course of 2015, which Eurasia Group estimates amounted to 25 percent before the latest reduction.

But, as Bloomberg reports, the policies leave companies at the mercy of the central bank’s view on which sectors need dollars the most, driving many to the black market, Jose Severino, chairman of the Angola Industrial Association, or AIA, which has 2,100 members, said in December.

Central bank Governor Jose Pedro de Morais is trying to reduce the gap between the kwanza’s official rate and that on the black market, where the currency was last year fetching between 270 and 280 per dollar.

 

 

[That implies another 50% plus devaluation to meet the 'market' price of currency]

 

A drop of more than 65 percent in the price of crude since June 2014 has curtailed the flow of dollars into the economy of sub-Saharan Africa’s second-largest oil producer.

While the slow-motion train wreck continues - as it appears a slow and painful devaluation is some form of currency defense (and capital controls internally), of course,  as we concluded previously, defending one's currency is a losing game as not only Argentina most recently, but the Swiss National Bank most infamously, will admit.

"As African central banks place restrictions on access to their dollars, while burning through these reserves to support their currencies, they are also storing up longer-term troubles. “Few investors will want to put money into a country at an official exchange rate that is not set by the market and which is not seen as sustainable in the long run,“ said Charles Robertson, global chief economist at investment bank Renaissance Capital."

For now Africa has avoided the "hyperinflation monster", the result of an all too predictable scarcity of dollars, however the countdown is on and with every passing day that oil prices do not rebound, the inevitability of a full-on continental currency collapse, with hyperinflation and social unrest to follow, becomes increasingly more likely.

Worse, Africa is just the start: while the manifestations will differ, the mechanics of the dollar shortage, which we recently quantified in the trillions of dollars, are universal, and should the Fed's rate divergence path with the rest of the world continue pushing the USD ever higher, soon this USD-shortage will escape the confines of the world's poorest continent and make landfall somewhere where it will be far more difficult to ignore the adverse consequences of the global commodity collapse and the Fed's monetary policy.

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Soul Glow's picture

IMF foaming at the mouth to pick up any remaning resources.

Occident Mortal's picture

2016 is the year of the dollar.

 

As the Federal Reserve tightens and the petrodollar unravels it forms a virtuous circle with the dollar strengthening and crushing commodity prices and commodity currencies, which in turn drives more dollar strengthening.

 

As the Fed tightens is drains all of the capital from DM, which must squeeze through an often illiquid FX swap.

Looney's picture

central bank devaluing Kwanza by 15%

Happy belated Kwanzaa, ZH’ers!

I must’ve missed St. Jamal’s dropping down my chimney…  ;-)

 Looney

Antifaschistische's picture

...should have bought gold, or silver, or platinum, or rhodium, or indium, etc, etc, etc,

ufos8mycow's picture

Of course this would have nothing to do with China and it's African focus. They would never want African nations to drop their currency and start using a gold backed Yuan...

thesonandheir's picture

Hey Africans, if your currency goes bust and you lose everything, no food or water and the threat of war is close just say fuck it and come to Europe! Everything is free here (including those white women) and you can bring the whole family!

 

Sponsored by Mama Merkel.

Dr. Bonzo's picture

gold backed Yuan...

Where do you guys keep coming up with this stuff? China just spent 30 years getting rich because they could manipulate the shit out of their currency. What interest do the commies have in fiscal discipline? They printed their way to prosperity and they're going to continue to print their way through the crisis. You still don't get it. Currency manipulation and gold hoarding needn't be mutually exclusive. Shit, do both and get rich quicker.

Gold-backed yuan... SMFH......

SethDealer's picture

2016 is the year of the monkey!

knukles's picture

This is the result of naming a currency after a make believe holiday.  Monkey-hammered!

malek's picture

 2016 is the year of the dollar.

All the way to the end of 2016?
Dangerous belief.

Sudden Debt's picture

Just like the brutalities and fascisme returned home to America so will the inflation monster.

Hubbs's picture

It's unbelievable how everyone gravitates towards the US dollar. It's like all the women flocking to, and wanting to have sex with, a handsome young man who happens to have HIV.

BadLibertarian's picture

... as long as he has dollars. That's it - it's the Charlie Sheen economy, and we're all "winning."

alexcojones's picture

Quick: Box up ALL those gold Sacajewea coins and send them pronto to Angola.

Where is Angola anyway? Maine, right?

Why U.S. Dollar Coins Are Not Circulating
knukles's picture

It's a maximum security state prison farm prison in Louisiana.  That or a maximum fucked up shit hole in Africa, I hear tell.
Where's Mad Mike Hoare and his 5 Commando Wild Geese when we need him?

Dr. Bonzo's picture

Angola is right outside a community near you. Soon. Count on it.

Papi_Al-Mahdi's picture

http://www.bullion-rates.com/gold/AOA/spot-price.htm

 

Gold is responding nicely in Angola.

 

Why is Gold not responding in Valenzuela??? It's weird!

JustObserving's picture

Obama's war on oil has taken out $3 trillion in revenues from oil producers.  That is a big chunk of the global GDP of $70 trillion or so.  

The fall in oil is affecting other commodities too.  Developing economies are screwed.  And Africa will remain screwed until oil prices recover.

Kaiser Sousa's picture

"calling China.... Hello!"

August's picture

I'm a pretty soft-hearted guy; last night I was a bit distressed by a TV solicitation for aid to "the starving children of Africa".

It's hard to know what, exactly, to do with population of Africa.  I guess the Chinese will find a use for them.

Niall Of The Nine Hostages's picture

It's actually blindingly obvious what to do with Africa's population. Bring Old Man Smallpox out of retirement and let him do his job of keeping Africa's population to a manageable size.

 

forwardho's picture

Did they not just try that with Ebola?

There are billions the world over being fed real food with pretend fiat.

just saying.

 

Dr. Bonzo's picture

Funny you mentioned that. Chinese have no use for Africans. Chinese fly their own labor into Africa. Chinese live in their own enclaves. Don't mix with the locals. They want to strip mine the place. As far the Chinese are concerned the Africans can all go jump off a cliff and get it over with.

The Ram's picture

ah, destroying developing nations currencies then buying the assets in these countries at pennies on the US Federal Reserve note.  Not hard to see the game here.  Not likely that these countries will fight the beast.  Very sad for third worlders......soon to include the US middle class.

NEOSERF's picture

Is Angola still a country or did it get subsumed into ISIS North?

WTFUD's picture

DAESH wouldn't last a fortnight in Angola.

Salsa Verde's picture

Cool; I need another $100 Trillion note for my collection.

Oldrepublic's picture

Actually in 2012, the BBC reported that Luanda, the capital of Angola was the world's most expensive city to live

bluskyes's picture

The Kwanza? Did they name their currency after the holiday, or the other way around?

Niall Of The Nine Hostages's picture

Swahili for "harvest," I think.

But what does it matter? As good a name for a fake black American holiday as for fake black African bank-confetti.

surf0766's picture

"Give them the wealth. Give them the wealth."

Niall Of The Nine Hostages's picture

Remember how things were so rough in Portugal that otherwise sensible Portuguese were actually moving back to their former colony in Angola in search of opportunities?

Dare I ask how that worked out?

WTFUD's picture

Struth, you can see where whitey's off-loading it's inflation. It was 75-80 when i spent 6 months there 6 or so years ago.

Don't worry about social unrest in Angola, even the US ground forces would be mutilated by the Dos Santos Brigade. Brutal.

Ajax_USB_Port_Repair_Service_'s picture

I hear Angola has some terrific beaches. Could be a great tourist place if they ever got their act together. Guess there's not much chance of that happening. Too bad.

Dr. Bonzo's picture

Option B: go ring the bell at the Merkel residence. She's taking all comers. Europe is dying to kill itself.

GoldSilverBitcoinBug's picture

Plan for option Bitcoin !