Africa Just Says "Nein" To The US Dollar: Time To Go Short The USDZMK And USDGHC?

Tyler Durden's picture




 

Last week we presented the aftermath of the very much unannounced "Conference of Beijing" as a result of which Africa has been slowly but surely converting to a continent controlled almost exclusively by China. However, there was one thing missing: even as China has been virtually the sole source of infrastructure funding in Africa, the continent has long been a legacy dollar preserve, which obviously means renminbi penetration and replacement would be problematic to say the least. As it turns out, this too is rapidly changing: as the WSJ reports, Africa is increasingly just saying "nein" to the USD. "African countries are trying to shoo the U.S. dollar away, even if it means threatening to throw people who use greenbacks in jail. Starting next year, Angola will require oil and gas companies to pay tax revenue and local contracts in kwanza, its currency, rather than dollars. Mozambique wants companies to exchange half of their export earnings for meticais, hoping to pull more of the wealth in vast coal and natural-gas deposits into the domestic economy. And Ghana is seeking similar ways to reinforce "the primacy of the domestic currency," after the cedi plummeted more than 17% against the dollar in the first six months of this year. The sternest steps come from Zambia, a copper-rich country in southern Africa where the central bank has banned dollar-denominated transactions. Offenders who are "quoting, paying or demanding to be paid or receiving foreign currency" can face a maximum 10 years in prison, the central bank said in a two-page directive in May." Is it time to dump the EUR in hopes of a short covering rally that continues to be elusive (just as Germany wants) and buy Zambian Kwachas instead? We will wait for Tom Stolper to advise Goldman clients to sell the Zambian currency first, but at this rate the USDZMK may well be the most profitable currency pair of the next 3-6 months.

Why is Africa angry at the one allmighty Greenback?

The moves aim to strengthen thinly traded currencies and steer more capital into isolated financial markets. But the new rules are an abrupt change for foreign and local companies used to doing business in U.S. dollars.

In other words, Africa is finally pushing for its own capital markets, rudimentary as they may be. One wonders just who may be pulling the strings behind this very quiet but very crucial development. But one thing that is certain is that the traditional operations for legacy companies in Africa is about to change for good:

"There will be an adjustment period," said Mike Keenan, an African currencies analyst at Absa Capital, a South African subsidiary of Barclays PLC. "But the story with Africa and commodities has been one where the proceeds kind of circumvent the country. These authorities are trying to clamp down on that."

 

Zambia's central bank sees upside to a strong and liquid kwacha.

 

The move to promote the currency's use gives authorities leverage over monetary policy they lacked without control of the dominant market currency. The crackdown also could bring local banks new business in hedging instruments and foreign-exchange transactions.

 

"The kwacha is legal tender," said Caeser Siwale, chief executive in Zambia for Renaissance Capital, an investment bank. "There tends to be a different yardstick for us," with big companies expecting small economies like Zambia to live with a reliance on foreign currency that would never happen in Europe or China, he added.

 

In Zambia, the measures appear to be working. Heightened demand for kwacha pushed the currency to its highest level in more than a year in July, when it reached 4,640 to the dollar. It has slipped a bit since then.

So why go long the ZMK (and short the USD)? Here's why.

Fueling the demand were foreign-owned manufacturing and mining companies racing to acquire kwacha even as they asked the government to reconsider the policy. The companies complain it make operations more expensive and cumbersome.

 

"It might be hard to find kwacha when you need it," said Frederick Bantubonse, general manager of Zambia's Chamber of Mines. Mining companies also are worried about the cost of hedging their copper production against kwacha volatility. The group has appealed to government to limit the types of transactions affected by the move.

 

In the long run, strengthening the kwacha by decree will take less time than demonstrating political stability and a commitment to controlling inflation, said John K. Wakeman-Linn, mission chief for Zambia at the International Monetary Fund.

And while it is unlikely that the Kwacha has to fear becoming a carry currency, the short USDZMK may be at best a short-term trade. At least until China reveals its full plans.

In the long run, strengthening the kwacha by decree will take less time than demonstrating political stability and a commitment to controlling inflation, said John K. Wakeman-Linn, mission chief for Zambia at the International Monetary Fund.

 

"I don't think it's necessarily an adverse policy, but I don't see it providing a lot of additional long-term confidence in the kwacha, either," he said. "Regulation like this cannot substitute for policies that generate confidence in the market."

Those who are leery of going long just one African country can diversify their holdings. Into Ghanaian Cedis, aka GHS (1 year chart of USDGHC here).

Policy makers elsewhere in Africa are watching Zambia. Ghana, another fast-growing African economy with rich mineral deposits and a nascent consumer class, also is seeking to boost its currency's value.

 

Since May, Ghana's banks have had to keep all of their deposits at the central bank in cedi, rather than a mix of cedi and U.S. dollars. The switch encourages banks to seek deposits in cedi rather than foreign currency, according to Millison Narh, a deputy governor of the Bank of Ghana.

 

The central bank's pro-cedi policies aim to make life easier for people like Sterre Mkatini, who recently lugged a backpack filled with $8,000 worth of local currency to a nearby bank to pay one year's rent upfront. Many landlords demand such payments to sidestep high inflation.

Of course, there are risks:

Kwaku Asente Addo, a cashier at Penta Forex Bureau, isn't sure Ghana's government can or will do much to purge the greenback. "They can't do that; they're bluffing," he said.

Maybe they are. But if, indeed, China is pushing the strings, maybe they aren't.

Finally, here is the one currency to really watch:

A central bank ceiling on over-the-counter dollar transactions at banks has sent Ghana's class of China-bound traders into street-side foreign-exchange bureaus that normally cater to fanny-pack-clad tourists. Chinese importers often show up just before flights back to China desperate to buy $100,000.

How long until China will welcome all African transactions to settle in CNY?

Either way, keep a close eye on Africa. Things are heating up there quickly.

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Mon, 08/13/2012 - 10:21 | 2700712 francis_sawyer
francis_sawyer's picture

Gold speaks many languages...

Mon, 08/13/2012 - 10:25 | 2700731 Long-John-Silver
Long-John-Silver's picture

and GOLD is understood in all languages.

Mon, 08/13/2012 - 10:40 | 2700775 Pladizow
Pladizow's picture

Jim Rickards Bitchez!

Mon, 08/13/2012 - 11:08 | 2700832 Manthong
Manthong's picture

Zambia is not Haiti.

Mon, 08/13/2012 - 11:14 | 2700845 camaro68ss
camaro68ss's picture

Operation enduring African freedom commencing in 3....2....1..... commence Kinetic carpet bombing  

Mon, 08/13/2012 - 10:41 | 2700780 economics9698
economics9698's picture

The bankers whored out America, time to move on and steal another pot of gold.  Africa needs to watch their back.

Mon, 08/13/2012 - 10:34 | 2700760 dereksatkinson
dereksatkinson's picture

Using gold for international settlement?  That's crazy!~ 

 

It's also the right thing to do.

Mon, 08/13/2012 - 10:36 | 2700763 Peter Pan
Peter Pan's picture

Gold is the only Esperanto of history.

Mon, 08/13/2012 - 11:19 | 2700861 Sisyphus
Sisyphus's picture

Gold just listens, never speaks.

Mon, 08/13/2012 - 13:35 | 2701154 defencev
defencev's picture

This site continue to predict many years of depression and the end of US Dollar.

You cannot have both. The emphasis on currencies of resource reach countries in this article makes no sense: everybody knows that the only way to trade commodities during recent years was to lose money and if not QE rounds it would be one way street. That is the truth of deflationary environment (sorry Jim Rogers).

And as long as it lasts all these kwachis and kwanzas will remain what they are:

just worthless shit while the dollar continue to reign despite sudden emphasis (by this site) on idiotic actions of local central banks.

Mon, 08/13/2012 - 10:23 | 2700723 malikai
malikai's picture

I wonder how much of this is due to local currency volatility in those countries(as opposed to China's influence or dislike of the U$D).

Mon, 08/13/2012 - 10:33 | 2700755 dereksatkinson
dereksatkinson's picture

all the emerging markets have been volatile because of the dollar.  It's NOT a domestic issue. 

Mon, 08/13/2012 - 10:39 | 2700772 malikai
malikai's picture

I'm sure local/regional politics plays a big role in their currencies. But WRT the dollar cross on any of those currencies, the volatility(and spreads) are horrendous. Promoting local/regional exchange is just good business sense, provided they can keep political stability.

Mon, 08/13/2012 - 10:25 | 2700730 Blopper
Blopper's picture

No dollar allowed.

Toilet paper is exempted.

Mon, 08/13/2012 - 10:39 | 2700771 Peter Pan
Peter Pan's picture

Well said Blopper. Toilet paper truly is the only fiat currency of any enduring value.

Wed, 08/15/2012 - 18:51 | 2708564 mkkby
mkkby's picture

I predict a renewed interest in handing out dollar-denominated foreign aid.  Spread around by CIA (no, I meant NGOs and missionaries).

Watch your back Africa.  Rebel armies have been supported for much less.

Mon, 08/13/2012 - 10:26 | 2700737 Hype Alert
Hype Alert's picture

They've seen this movie in the Zimbabwe fiasco.

Mon, 08/13/2012 - 10:27 | 2700738 buzzsaw99
buzzsaw99's picture

5000-1? Oh yeah, gimme some of those kwachas baybee! :snark:

Mon, 08/13/2012 - 12:19 | 2700966 digitalhermit
digitalhermit's picture
USDZMK and USDGHC? No thanks, I think I'll stick with short the USDBTC cross. http://usd.cer24.com/btc/chart/?q=180
Mon, 08/13/2012 - 10:27 | 2700739 Stuck on Zero
Stuck on Zero's picture

We are not Uganda.

 

Mon, 08/13/2012 - 10:29 | 2700744 Long-John-Silver
Long-John-Silver's picture

but Uganda can come to you.

Mon, 08/13/2012 - 14:26 | 2701339 Zwelgje
Zwelgje's picture

You mean Kenya?

Mon, 08/13/2012 - 10:27 | 2700740 LongBalls
LongBalls's picture

It's time to short everything. Get out.

Mon, 08/13/2012 - 10:28 | 2700742 Zola
Zola's picture

Knowing that Bernanke gets his inspiration from the African money printers such as Gideon Gono, i'd be a bit careful about going long any of these currencies. Gold probably much better

Mon, 08/13/2012 - 10:43 | 2700788 buzzsaw99
buzzsaw99's picture

If that were true then people would be able to pay off their debts. The bernank only cares about his friends in high finance. Permanent debt slavery is what they want for everyone else.

Mon, 08/13/2012 - 11:19 | 2700862 j0nx
j0nx's picture

That's why I laugh when people say hyperinflation. No mechanism for wage increases in the US due to global wage arbitrage and no way the banksters allow you to pay off your debts with your new found hyperinflated currency. Not gonna happen until the country is doomed and then it won't matter anyway since debts will be the least of your worries with the FSA knocking down your door asking for 'dey gimmedats'. Nope, sorry suckers, you get hyperbiflation and you'll like it.

Mon, 08/13/2012 - 11:38 | 2700901 Jack Burton
Jack Burton's picture

Agreed! Hyperinflation is not the game, it is deflation. No mechanism for wages to rise in the west. Hell, on average they are going down. Sure the 1% have made big gains, but they are not going to drive inflation!

Mon, 08/13/2012 - 17:04 | 2701988 Nels
Nels's picture

What, no room in your dichotomy for stagflation?

The folks who can drive inflation are the central bankers, and I'm pretty sure they all fit within the 1%.

Mon, 08/13/2012 - 22:27 | 2702867 HurricaneSeason
HurricaneSeason's picture

Since very little in the stores is made in america, it's unlikely that american wage increases or decreases will be the only factor in inflation. China's wages are increasing and once they have enough dollars stockpiled and enough Chinese employed, prices should take off.

Mon, 08/13/2012 - 13:01 | 2701085 Totentänzerlied
Totentänzerlied's picture

"Not gonna happen until the country is doomed"

Define "doomed"...

Mon, 08/13/2012 - 11:55 | 2700936 AnAnonymous
AnAnonymous's picture

Knowing that Bernanke gets his inspiration from the African money printers such as Gideon Gono,

________________________

That is the reverse. They got their inspiration from US citizen economics.

Mon, 08/13/2012 - 14:34 | 2701377 Zwelgje
Zwelgje's picture

And 'US citizens' got their inspiration from the Chinese. 

 

The Yuan dynasty (1271-1368) printed vast amounts of money leaving the little people weary of paper money ever since.

Mon, 08/13/2012 - 17:04 | 2701991 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Chinese are not in a hurry to make the yuan fully two-way convertible. Last thing they need is loads of sweaty little fuckers arriving with a pile of kwanza at the airport, who then want to buy yuan for the trip back home. They want the US to be the bag holder of the "reserve currency" scam. On the other way, though, they recently relaxed exchange control laws to allow people to use yuan to buy foreign currencies.

Mon, 08/13/2012 - 10:29 | 2700746 robobbob
robobbob's picture

silly peasants

how long before "informed sources" discover that al CIAUDA is really behind these moves and launches a peace keeping effort to bring freedom and democracy to their central banks?

everyone up for a serengeti spring?

Mon, 08/13/2012 - 10:30 | 2700747 LawsofPhysics
LawsofPhysics's picture

Long PM's then.  Oh wait, have been for 20+ years, physical that is.

TPTB won't like this, listen for the drums of war to beat louder.

Mon, 08/13/2012 - 10:42 | 2700785 malikai
malikai's picture

When we hear that Nigeria has decided to form it's own bourse, we'll know for sure that it's time to go long war again.

Mon, 08/13/2012 - 14:31 | 2701363 Urban Redneck
Urban Redneck's picture

uh, they've got one already,
the've even got their own SEC
http://www.sec.gov.ng/

Mon, 08/13/2012 - 10:32 | 2700752 smlbizman
smlbizman's picture

the fed is going to have to contact klinger to get fresh excuses on why we are invading africa now...wmds, nukes, democracy, save the whale...cant wait for this one...

Mon, 08/13/2012 - 10:57 | 2700815 A Lunatic
A Lunatic's picture

There is evidence of machetes of mass destruction..........

Mon, 08/13/2012 - 10:33 | 2700756 yogibear
yogibear's picture

Time for all responsible countries to dump the US dollar. Bernanke and the Fed believe they have ability and right to print to infinity.

Will Bernanke and the fed defend the US dollar? Looks like no. 

If the US dollar broke the lows Bernanke and the fed would look for other countries to shore-up and buy the US dollar. What a game.

Mon, 08/13/2012 - 10:45 | 2700794 Winston Churchill
Winston Churchill's picture

Only whem they are ready with their alternate SWIFT system.

Watch this space................

Mon, 08/13/2012 - 10:33 | 2700757 pods
pods's picture

Lots of Al CIA duh in Africa at the moment.  I read on the internet that Al CIA duh has set up several franchises all over the continent.

Just a coincidence that they set up shop in the countries that are less than favorable to being flooded with FRNs.

pods

Mon, 08/13/2012 - 10:35 | 2700764 Scalaris
Scalaris's picture

 

 

Just wait for the Renminbi to become the defacto panafrican currency instead of bying Angolan & Ghanaian candidates of hyperinflationary paper.

In the interim, I'm guessing the UN would be reviewing its actions for some more "democracy spreading / rebel assisting / dictator chasing" throughout the continent.

Mon, 08/13/2012 - 10:39 | 2700768 Temporalist
Temporalist's picture

Hello.  My name is Kntuwee and I am a prince of Zuckaire.  I have created this Falsebook to accept transfers of money totaling $24,000,000,000 of which I have the privelege to reimburse you 10,000:1 for you time and generosity, because my finance minister has suspended some accounts due to over-pricing on transaction fees.

 

The transefer is risk free on both sides as GS and JPM represent us.

 

If you find this proposal acceptable, we shall require the following documents:

(a) your banker's name, telephone, account and fax numbers.

(b) your private telephone and fax numbers —for confidentiality and easy communication.

(c) your letter-headed paper stamped and signed.

Mon, 08/13/2012 - 10:42 | 2700783 OhBaldOne
OhBaldOne's picture

It all makes sense why the US is strengthening its AFRICOM positions - if the "Savages" in Africa dump the buck, it'll be time to re-bomb them back to the ultra-dark ages. And if gold is used for any transactions in the oil-rich countries, you can expect regime change, more drone activity, boots-on-the-ground, and yet another Libya-like NATO excuse to invade, overthrow and seize the oil fields.

Mon, 08/13/2012 - 10:58 | 2700817 Miss Expectations
Miss Expectations's picture

They are clearly listening to the Ghost of Moammar; gone but not forgot.

Mon, 08/13/2012 - 11:12 | 2700838 Offthebeach
Offthebeach's picture

Brussels/EU will go along in their dark hearts of we give them back the Congo...er...Zaire.

Mon, 08/13/2012 - 10:43 | 2700786 Quinvarius
Quinvarius's picture

Just time to get gold, not African paper. 

Mon, 08/13/2012 - 10:46 | 2700797 the 300000000th...
the 300000000th percent's picture

I guess gold isnt just for pre WW2 jews and central banks

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