DRC: May 17, 1997 marks the advent of the Congolese franc!

History page] – The revolution of May 17, 1997, marked the advent of the monetary reform that sanctioned the arrival of the Congolese Franc (CDF). The Central Bank of Congo, the technical body of the government in the monetary field, did not go through four ways to see it at that time. Zoom Eco recalls this page of history told by François Kabuya Kalala and Tshiunza Mbiye in the publication entitled « The Congolese economy and the monetary reform of June 1998 ».

« The political change in the country since May 1997 that changed the name of the country should also imply a change in the monetary unit whose name was associated with that of the country. It is the same with the name of the Institute of issue taken over banknotes, « said the BCC through a note from its Technical Unit for the Monetary Reform (CETEREM) published in July 1998 (p.6) .

motivations

Moreover, in view of the economic situation prevailing in 1997, it became even more urgent for the Government to take corrective measures through a two-part economic adjustment program: short-term monetary stabilization and recovery of the economy in the medium term.

Indeed, reminded the CETEREM, « the macroeconomic indicators of the last ten years attest that the Congolese economy bends under the effect of the fundamental imbalances, in spite of various measures of recovery implemented ».

For the defender of Mobutu, the liberator Mzee Laurent-Desire Kabila, the issuance of a new currency called « Congolese franc » had a dual political motivation: that of marking the advent of a new power, and that of claiming subtly of a currency, of the same name, which had been characterized by its relative stability in the colonial era.

Alarming numbers

The BCC estimated at the time that GDP declined by 42.9% between 1990 and 1994; this downward trend only faded slightly in 1995-1996 before continuing in 1997. Excluding a surplus of $ 57.1 million in 1995 resulting from a large volume of unregulated suspensions at the end of year, the consolidated deficit was $ 157.1 million in 1994 and $ 51.7 million and $ 62.5 million respectively in 1996 and 1997. These budget deficits were substantially by monetary creation.

In 1994, one year after the monetary reform of October 1993, the monetary expansion was 10,323.2% before being reduced to 308,8% in 1995 and 471% in 1996. In addition, Inflation remained very high: the highest level was reached in 1994 with an annual rate of 9,769%, compared to 370% and 753% in 1995 and 1996.

As for the monetary sector, it was pinned on the one hand the gradual demonetisation of the economy. The money supply / GDP ratio had fallen to 4.3% in 1997 from an average of 10% in previous years. On the other hand, the checks suffered a heavy discount in transactions, thus devoting the break of the parity between the fiduciary money and the scriptural money.

The banks themselves were plagued by strong financial disintermediation, while the soaring « dollarisation » was a not-too-obvious sign of the widespread loss of confidence in the national currency.

One reform, four objectives

In the context described above, the monetary reform was particularly necessary to: clean up the monetary and financial environment characterized by the persistence of hyperinflation, the disruption of the payments system and the multiplicity of exchange rates; stabilize the currency and unify the national monetary space; increase the liquidity rate to finance the economy; and, encourage the revival of production activities.

Indeed, the launch of the Congolese franc was only the final step of all the measures forming part of a program of economic adjustment and monetary consolidation. Several prior actions were carried out between May 1997 and June 1998 to stabilize the currency, restore the fiduciary and par value convertibility of bank money into fiduciary money, gradually unify the national monetary space, and to reduce the disparity of the exchange rates between the different places.

Thus, when it was put into circulation on 30 June 1998, the Congolese franc exchanged at the rate of 1 CDF = 100 000NZ in Kinshasa and everywhere circulating the so-called « new zaïres » banknotes. On the other hand, it was exchanged at the rate of 1 CDF = 14 000 000Z in the two provinces of Kasaï where circulated the old Zaïres. This release was spread over a whole year, a time considered sufficient to allow the people of the hinterland to easily exchange their money.

As regards the external parity of the Congolese franc, the monetary authorities have stated (by adherence to the principle of flexible exchange rates) that this parity will be determined according to the prevailing market forces on the eve of the launch of the new currency.

As at June 30, 1998, history indicates that the official exchange rate posted was US $ 1 = CDF 1.3 against US $ 1 = CDF 1.48 a year later on the parallel market. Currently, 20 years later, 1 US dollar = 1650 CDF.

This represents a depreciation of about 111,000%.

Eric TSHIKUMA | Eco Zoom