Interbank Market News Scan: If currency reflects value, Europe buys Africa on the cheap ….

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My morning takeaway …

The value of a currency is determined by changes in supply and demand; the demand for Treasury notes denominated in the base currency; and the amount of the base currency held in reserve by foreign central banks.  The greater the amount of base currency held by foreign central banks, the lower the supply of the term currency, thus the higher the term currency’s price.

In the table below, the base currencies are on the left of the slash mark, the African currencies. The term currency, in the case the euro, is on the right of the slash.  So, today one Ghanaian cedi (GHS) is priced at 0.1419 euros.

At first blush it is tempting to consider the low euro price as a bad thing.  Yes, currency represents a country’s economic value and given these low absolute euro values a reader may feel despondent that Europe looks apparently with low favor on the African continent.  They would not be wrong.  The African continent has long been Europe’s supplier of resources with a well-documented imbalance in the relationship.

Coming terms with the imbalance should include African central banks and national governments taking fiscal and monetary actions to drive up their currency values.  The continent has taken small but important steps toward doing so with the creation of the African Continental Free Trade Area (AfCFTA) which went into effect last January.  The 54 signatories to the agreement hope that removing non-tariff barriers to trade, elimination of 90% of tariffs on internal trade, and the facilitation of the movement of human capital between nations will go far in stemming its move from the current colonial model and, in the words of Wamkele Mene, the AfCFTA secretariat, move Africa away from being a provider of commodities with final goods being processed elsewhere.

With a little resilience and focus, the Continent will get there and Europe will have to take another look at how she evaluates Africa’s value…

19 May 2021

Currency PairsRates as of 12:44 pm GMT 19 May 2021Rates as of 19 April 2021
GHS/EUR0.14190.1437
GMD/EUR0.01590.0162
NGN/EUR0.00200.0022
SLL/EUR0.00010.0001
KES/EUR0.00760.0077
RWF/EUR0.00080.0008
ZAR/EUR0.05840.0584
MZN/EUR0.01370.0135
Source: OANDA

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