Browsing: currency crisis

Rising in Africa

Addressing the rising inflation in Africa while supporting economic growth and cushioning the vulnerable against economic shocks requires an urgent but careful approach.

  • Multiple shocks have gripped a world economy already ravaged by the pandemic.
  • Sub-Saharan Africa has been facing one of the most difficult economic circumstances recently, with the pandemic’s delayed recovery, soaring energy and food prices, and increased public debt levels.
  • Central banks have already started raising interest rates in response to rising inflation in Africa, capital outflows, and currency devaluation caused by tighter monetary policy in industrialized countries.

A gloomy and an uncertain global economic outlook

Gloomy signs of progress in 2022 highlight a tentative global economic recovery in 2021 as risks started to manifest. Global production fell in the second quarter due to slowdowns in Russia and China. The United States (US) consumer spending also fell short of expectations.

Multiple shocks have gripped a world economy …

Currencies are plummeting, with increased import prices exacerbating economic and inflationary pressures for Africa, the end result being a currency crisis.

  • A currency crisis occurs when the value of a country’s currency falls drastically.
  • The euro’s decline directly impacts the 14 African nations that use the CFA franc, linked to the European single currency.
  • Most African nations lack a robust commodities export base making them vulnerable to economic shocks.

Understanding what a currency crisis means

A currency crisis occurs when the value of a country’s currency falls drastically. This loss in value, in turn, negatively impacts an economy by causing instability in exchange rates. This means that one currency unit no longer buys the same amount as another.

This crisis can be both foreseen and unexpected. It might be caused by governments, investors, central banks, or any combination of these parties. However, the end outcome is always the same: A …