Confederação das Associações Económicas de Moçambique

Impact of exchange rate fluctuations on the economy of Mozambique

1.0 Introduction

The exchange rate is a central price in the economy of Mozambique.
It is a key variable in establishing the domestic price level. It is the principal equilibrating variable in the country‘s international trade and payments. And, ultimately, it is a major facilitating variable in determining the rate and pattern of economic growth. To underscore the importance of the exchange rate in the economy of Mozambique just ask any taxi driver in Maputo for the latest US
dollar or Rand or Euro exchange rate and he can tell you right away. But ask him about other important prices, such as the latest bank interest rates or evolution of the consumer price index, and he will generally draw a blank.

The taxi-driver‘s intimate knowledge of exchange rates stems from the fact that foreign currency rates are ubiquitous to everyday life in Mozambique. Trade integration with global markets has risen fast over the last several decades, particularly in terms of imports, and foreign currency is widely used locally for consumer and business transactions (e.g., rent payments on apartments, buying consumer goods across the border, accounts payable in business), as well as for savings. This ever-present nature of foreign currency in daily life amplifies the importance of exchange rate fluctuations on the economy and captures the interest of policymakers.

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