An Economist says the recent appreciation of the Kwacha against the US dollar and other convertible currencies is due to a combination of policy interventions, seasonal foreign exchange inflows and improved market confidence.
The Kwacha has shown strong performance recently, strengthening significantly against the US Dollar in early 2026. According to Trading Economics, the USD/Kwacha exchange rate fell to 19.36 today, January 12, 2026, down 0.33% from the previous session.
Speaking in an interview with Money News, Dr. Esther Banda said one of the key drivers of the strengthening currency in recent months is the government’s de-dollarization policy, which has been reinforced by the Bank of Zambia.
Dr. Banda explained that the Central Bank has reiterated regulations requiring that domestic transactions be priced, recorded and settled in Kwacha, except in clearly defined circumstances.
“We know that government and the Bank of Zambia had put up a policy, I think in the past two to three weeks, where we have been told that all transactions will be recorded and settled only in Kwacha and not in the United States dollars, except in certain conditions and situations.”
“So the central bank has reinforced this rule, making the Kwacha the sole legal tender, leading companies and individuals to sell the U.S. dollar and buy the Kwacha. So this policy shifts, triggers an immediate increase in Kwacha demand, and a drop in the United States dollars,” Dr. Banda noted.
She added that seasonal and tax-related foreign exchange inflows have also played a significant role.
According to Dr. Banda, mid-year tax obligations, including corporate taxes and pay-as-you-earn, have prompted exporters and firms holding foreign currency to convert dollars into Kwacha to meet local obligations.
“These flows are often seasonal and may not persist in the long run, but they are quite significant on the impact of the exchange rate in the short run.,” she said.
She further pointed to strong export earnings, particularly from the mining sector, as another contributing factor.
Dr. Banda noted that copper prices have remained elevated over the past two to three months, boosting export receipts and increasing foreign currency inflows into the local banking system.
She also cited reduced demand for foreign exchange, partly due to improved agricultural output, noting that better rainfall and harvests in recent seasons have lowered the need for food imports, easing pressure on the foreign exchange market.
Dr. Banda added that improved investor and market sentiment, supported by positive assessments from institutions such as the International Monetary Fund (IMF) and the World Bank, has reinforced confidence in the economy.
She further stressed that the Bank of Zambia’s monetary policy stance and liquidity management have indirectly supported the currency by reducing excess liquidity and containing inflation expectations.
“I think we have heard good reports coming from the IMF and the World Bank. And last but not the least, I think we can tell that the monetary policy and liquidity management that has been used by the central bank could also contribute to the strengthening of the Kwacha. So these are some of the factors that have led to the Kwacha appreciating in the past month,” she noted.
