Wednesday, October 20, 2021

Brexit strengthens Pula against Pound

The local currency, the Pula, joined other global currencies to crush the British Pound which plummeted by roughly 11 percent at points against the US dollar early Friday morning.

Global money markets data indicate that the pound sterling endured one of its worst-ever one-day declines. By close of markets on Friday, the Botswana Pula had appreciated by 4.44 percent against the Pound while it entered a downtrend against South African Rand.

The depreciation of the Pound against foreign currencies such as the Pula has been pointed to Britain’s referendum decision to leave the European Union. The decision throws a large pall of uncertainty over the British economy.

On Friday market analysts maintained that the British exit from the EU would throw scores of trade deals into doubt and could potentially disrupt the economy for some time to come. Since demand for a nation’s currency reflects global demand to trade and invest in that country, the sharp downturn in the pound is a sign that the world economy expects to do far less business in Britain in light of the vote.

However the exchange rate data provided by the Bank of Botswana on Friday indicate that the Pula, which has been weakening against most of the SDR currencies, was over powered by the European Union currency, the Euro. The data shows that against the Euro, the local currency continued to crawl, heading down by 0.49 percent.

In 2013, after almost 10 years of non-disclosure of both the rate of crawl of the Pula and the weight of the currencies in the basket, government acceded to calls from economists and investors for their disclosure.  

The move which was meant to foster transparency of Botswana’s exchange rate mechanism is now being reviewed on an annual basis.

The annual review of the Pula basket of currencies is done to keep up with monetary policy developments in Botswana’s major trading partners and to maintain a stable and competitive real effective exchange rate.

The basket comprises the South African Rand and the International Monetary Fund (IMF) Special Drawing Rights (SDR) which consists of the US Dollar, Japanese Yen, the Euro and the British Pound Sterling.

During 2015, the weights of the Pula basket of currencies were 50 per cent South African Rand and 50 per cent SDR, with the rate of crawl set at zero per cent per annum. The basket has remained unchanged, with only the rate of crawl adjusted with effect from 1 January 2016.

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