Money Issues In Malawi

Okay this was an email from the Director of Mangement and Operations for Peace Corps Malawi in case anyone is intrested in whay is going on with the issues here. This affects me but it will all be okay as he says. Just thought I would share read if you want or don't :)
This is a quick note on the decision of the Malawi government to permit the Kwacha value to “float”.  The immediate impact has been a new Rate of Exchange closer to that offered by the informal markets.

Why a currency devaluation?
            Devaluation is usually undertaken to correct a deficit in the balance of payments. In the case of Malawi this is more imports then exports.  The theory is that weakening the value of a currency would be good for the economy-since a weaker currency will boost production, which in turn will lift employment and all this will set in motion economic growth and keep the economy going.
            The Kwacha is now a floating currency.   Its rate of exchange will be set by the market, and not as previously, set by the government.  This had the effect of causing the black market to flourish and grow and have undue influence on the economy.  The black market will not go away (there is always a black market – it’s one of the things that makes life interesting) but the official market should be more current and reflect reality causing the black market to diminish.

What are the implications?
            Devaluation makes a country's exports relatively less expensive for foreigners and it makes foreign products relatively more expensive for domestic consumers, discouraging imports. As a result, this may help to reduce a country's trade deficit.  Also, increase revenue collection and savings, and bring illegal foreign exchange (black) markets into official channels.

For you as a volunteer
            You may experience large price fluctuations, especially for imported goods.  This may vary depending on your location.  In the short term, you will see price gouging and speculation.  Over time this will settle down and prices will find their natural level.  If you have dollars you can get more kwacha for them in the banking system(~250 per USD today).  Prices may vary. 

Some suggestions:
·        Make only necessary purchases.
·        Be patient, if you don’t need it wait until things settle down.
·        Sellers will capitalize on fear and uncertainty.
·        Avoid imported goods, if possible
·        Do the opposite of the crowd.  If everyone is buying – sell; if everyone is panicking – be calm.
                For any economist, financiers, or development majors out there, this is a great learning opportunity.  You are experiencing on the ground the impact of an internationally imposed get well plan.  This could become quite useful for you when you become the decision-makers.  For the rest of us, it’s an education in group psychology, sound money management, and the impact of economic policy.  No more theory, just reality.

                Tough times are here.  I trust your resiliency, flexibility, and inventiveness to cope.  I also have confidence in your determination to stay focused on why we all came here.