A former US Treasury Secretary coined a phrase that stuck when asked what his government would do about the weak dollar; “it’s our currency but it’s YOUR problem”!

That pretty much sums up the situation today. The US dollar has hit a recent low against the Euro and the Pound Sterling but the US Federal Reserve Bank is none too concerned as it concentrates on warding off the impending recession and credit crisis. This is a complex situation that is as much beneficial as it is dangerous for the American economy.

A weak dollar makes American exports more affordable but it increases the price of oil and hence ultimately all goods. The dollar is not just the currency of America; it is the currency of the world much like the ancient Roman Sistirci or the Pound Sterling of years ago.

The world economy moves in sync with the US economy; when it’s in good condition so are we. When the Americans sneeze, we get a cold; we are all interlinked in the globalized economy where no man is alone. The dollar has been on a downward trajectory for more than a decade.

As a result of the rise of China, American Treasurers have sought to lower the value of the dollar in order to compete with Chinese exports, which are made at a fraction of the cost of their American competitors.

The US in the nineties found its manufacturing sector losing out to its Chinese counterpart while its economy became weakened by home industries relocating to cheaper locations like Vietnam and Mexico. Though the American exports could compete in terms of quality when it came down to just cost they were outdone.

When the former Chairman of the Federal Reserve Bank at the time, Alan Greenspan, one of the greatest economists of our time, moved, markets jumped. He watched, year after year, as the dollar slid against all major currencies leading to people assuming this was actual policy. For, it was assumed, the maestro would have acted if he thought that it bad for the economy.

Now retired, Alan Greenspan has since predicted that the dollar will lose even more value. US exports begun to rise in turn with the dollar falling; now American exports were out competing their European counterparts with British exports suffering the most due to the strong pound.

The weaker dollar saved many manufacturing sector jobs which were being shed as volumes rose while profits remained the same. This led to a large section of manufacturing firms going out of business; this period coincided with the consolidation of the sector as larger firms bought up smaller ones. Once the exports were tied to the lower dollar there was little chance of the dollar rising again.

In most Third World countries the dollar is the unofficial currency, accepted without exception. A number of countries (13) peg their currency to the dollar. Most international commodities are bought and sold in dollars be it oil, steel, wheat, you name it.

Oddly, the majority of dollar bills are in circulation outside the borders of the United States. China is estimated to have more than a $1.43 trillion in State coffers and it is using this war chest to buy influence in the Western economy like its recent purchase of 15% of banking giant Goldman Sachs. The America Treasury isn’t happy about this but is powerless to act as it can not force the Chinese to return their hard-earned dollars.

Money is a curious thing; just a piece of paper that we all agree is worth whatever we say it is worth. Right now the dollar is low but it still has the safest value of any currency. It is all about time; eventually the dollar will rise and some lucky person will have more money than they had before, just like that.

The real problem is not the dollar but the potential recession in the US and the world in general. If there is a global downturn then it will not matter how low the dollar is. The main factor in all this is rarely spoken about; the dollar though by far the most dominant global currency, is no longer the main reserve currency. Central banks now spread the risk by investing in a basket of currencies as opposed to the dollar exclusively. The market has responded to the weak dollar by diversifying into commodities; oil, steel, gold, wheat and even water are at record prices for peace time.

The dollar has wildly fluctuated against various currencies; against the pound sterling it’s almost lost twice its value. Against the Euro, it started on parity when the Euro was enacted in 1999, to $1.48 to the Euro. The most serious deficit is with the Chinese Yuan despite China’s refusal to revalue their currency. The Japanese Yen has also been re-valued and is really high against the dollar adding further pressure.

A credit crunch is looming and a weak dollar might help the situation by softening the impact as billions of dollars are written off in bad debt. It is better if that bad debt is in weak, not strong, dollars. The Federal Reserve under Ben Bernanke has been heavily focused on cutting interest rates to make money available to banks; the weak dollar has been a secondary concern.

Rwandans have been seeing the effects of this weak dollar as the prices of basic foodstuffs and imported goods have been creeping up, the rise of oil prices is another pressure. When one goes to the market you now get slightly fewer tomatoes than you got last month; the tomatoes require petrol to drive them from farm to market and petrol is pegged to the dollar.

Here is a table showing the average price rises of basic goods


Previous price

Current price

% increase





























USA oil




Basmati rice








(Source: New Times)

What this table shows is that traders are speculating and increasing prices at a higher rate than the rise of the price of Oil or the fluctuation of the dollar.

When one tries to rent a house is an affluent area of Kigali, the price is up because it is measured in dollars. Anyone involved in import/export is affected, retailers are affected and ultimately customers have to pay higher prices. From New York to Nyabugogo, the wheels of the global economy grind swiftly and affect each other; we are connected and intertwined. The weak dollar is a momentary blip in of a problem; Rwanda will go regardless, as we are caught in a full economic boom. Rwandans will also diversify the hard currencies they use in importing/exporting as the Euro has gained local value. The weaker dollar is better for Rwanda as investors can get more value for money in Rwanda. As inevitably as the sun will rise, so will the dollar, as it will be the world’s premier monetary unit for the foreseeable future.


Barclays eyes BK

The government of Rwanda is in the process of selling at least 70% of its shares in Banque de Kigali to Barclays Bank.

“We are now engaged with Barclays bank and we hope to conclude this exercise in June,” Rwanda’s Finance Minister, Mr. James Musoni said recently. According to the minister, negotiations are well into the due diligence stage.

The deal comes over two years after the government increased its shareholding in Banque de Kigali from 36.5% to almost 99.8% after repurchasing 50% shares owned by Belgolaise, a Belgian bank that pulled out in 2005.

Its gross income increased by 20.8% from Rwf9.9bn ($18.3million) in 2006 to Rwf12billion ($22.1million) in 2007. Banque de Kigali closed 2007 with an increase of 44% in net profit from Rwf2.9bn ($5.4million) in 2006 to Rwf4.2bn ($7.8million). Deposits increased by 47.6% from Rwf69billion ($126.8mn) in 2006 to Rwf101.8bn ($187.1mn). Total loans in the year in question increased by 28.6% from Rwf37.8bn ($69.5mn) in 2006 to Rwf48.6billion ($89.4mn).

The Barclays team was in Kigali in the beginning of the year to assess the banks position.

If the deal is successfully brokered Barclays PLC, the third largest bank in the United Kingdom PLC and among the ten largest banks in the world by market capitalization ($94.79 billion), would be the fifth foreign bank to enter the Rwandan banking sector. Other foreign banks currently active are Actis, Access, Ecobank and Fina bank.

Micro Solutions for Macro Problems

There are few people who can be as self-satisfied as Muhammad Yunus. When he goes to bed at night he basks in the glow of his overall goodness, he must look at his family, Nobel peace prize and his billions of dollars and think life is good. His story is the greatest vindication of capitalism which so often is derided for exploiting the poor; he has proved that you can help the poor and make billions. His Grameen Bank started in 1976 in rural Bangladesh with only $27 in capital but now has distributed $6.5 billion in loans.

His business is the template for aspiring micro-credit businesses worldwide including those in Rwanda. In the years following independence, African countries borrowing billions of dollars for huge white elephant projects that were expected to kick-start our economies in the Keynesian model but alas this did not happen. It is only now that we see that the money would have been better spent if it was used for micro-credit. People are better at assessing their priorities or problems and more efficient than government bureaucracies, which due to their size and nature are slower to react to events on the ground.

The top-down model (trickle-down) has been proved not to work so bottom-up models are required, there will still be need for top-down leadership from the government but bottom-up solutions are more democratic, efficient and always have the support of the end-users. Micro-credit exemplifies this ethos, helping people to help themselves and letting them pull themselves out of poverty. Micro-credit is the solution to some of our problems but it has to follow strict rules in order to succeed.

Firstly the company lending has to think local and be in sync with its clients who are often poor. The firm has to abandon all the precepts of large-scale banking such as looking for wealthy clients and charging higher rates. The profit motive must be there otherwise the whole system will crash but the costs must be low and the lender must be sensitized to the problems facing the debtor. Likewise the lender will benefit by knowing the opportunities in the market as well as the pitfalls. Local issues occur independently of global issues; for example a drought in a particular district can lead to economic collapse while the next district is unaffected. Multinationals have the motto “Think global, act local” but in micro-credit it is “Think local, act local.

Secondly the sums lent must be small, in order for the client to be able to repay, for example people sometimes use a goat as collateral because it is the most valuable thing they own. This helps the micro-business to grow organically due to good management and not because of high start-up capital. This also helps limit the risk involved and lower sums mean that you can lend to more people. Micro-credit must help the society in general not single individuals as businesses need to develop alongside their markets. The small sums highlight the fact that micro-credit is needed just to kick-start businesses, sometimes people need as little as $10 to start a business but even that is beyond the means of many people in poverty. This also means that a successful business can be out of debt in a matter of weeks if all goes well unlike firms who borrow larger amounts and can be in debt for years. This also helps turnover money quicker because the quicker they pay the quicker they can lend somebody else.

Thirdly support must be given to the client, it is not enough to just give them money, you have to give them skills, moral support, more time to pay if necessary and help develop symbiotic relationships. It is not the lenders interest for the business to fold and everything must be done to help them. Nobody ever has the whole answer; local knowledge must be added to modern business practices to produce a dynamic system to deal with problems. Education must be very important to the lender and vocational skills must be imparted to borrowers. If the population is better educated then it more likely to succeed, issues like resource management are important because these are often rural areas in delicate eco-systems. The projects must also be sustainable, not only in the environmental sense but economically and socially. Local customs and traditions must also be taken into account.

Lastly, women are the key to the success; in their role as primary care givers they are more likely to spend money wisely. Yunus saw women as the key his success, the same applies to Rwanda where women underpin the rural economy. If a woman is educated then her children are more likely to be educated, and if a woman is economically self-sufficient then her children will be as well. This was seen first hand in rural Rwanda when micro-credit was first introduced, the loans were given to men as they were the head of the family according to tradition but the money often ended up paying for local brew and increased alcoholism. Women however were seen to be more sensible in their handling of money.

In the absence of banking for the poor, or the just generally disadvantaged, micro-credit can fill a void that established banks have left behind. There still needs to be serious regulation of these firms to make sure they are not charging extortionate rates otherwise they can end up just being loan sharks.

The hardest part of banking is scrutinizing the character and determination of the borrower to pay, when someone is borrowing they always promise to pay but circumstances dictate whether they will. Close community ties make it easy to keep track of debtors. Micro-credit develops in conjunction with the needs and aspirations of a community; for now people want money to buy a goat or heifer but eventually they will need money to buy computers or cars. Micro-creditors have to stay in sync with their clients and think like they do no matter how big they get. They can provide micro-solutions for the global problem of poverty, one person as a time.

By Rama Isibo