On our part, we will do all we can, using all monetary instruments at our disposal, to contribute to reducing inflation and therefore, interest rates. As regards the exchange rate, this refers to the price of one currency in terms of another. In our case, it refers to the relative price of the kwacha against other currencies. The price of the kwacha against other currencies is directly determined by supply and demand conditions in the foreign exchange market and indirectly through the conduct of monetary policy. To improve the operations of the foreign exchange market, the Bank of Zambia developed the broad-based inter-bank foreign exchange system where suppliers (traditional and non-traditional exporters) and users (importers) of foreign exchange can trade transparently. Following the introduction of this system, there has been a significant improvement in the supply of foreign exchange on the market owing to the confidence in the system by market participants, efficient flow of information among all players and improved external sector performance brought about by increased copper output and unprecedented high world copper prices in recent times. These developments have contributed to the relative stability of the kwacha against major currencies and thus moderating inflationary pressures. In addition, the containment of growth in money supply has contributed to this outcome. Furthermore, the anti-dollarisation campaign that the Bank of Zambia waged some two and half years ago has had an equally important role to play in the observed relative stability of the kwacha against major currencies.
Caleb M Fundanga: Monetary policy issues and the process of foreign payments Presentation by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Zambian Heads of Missions Briefing Seminar, Lusaka, 19 July 2005. *  *  *  The Hon. Minister of Foreign Affairs, Lt. Gen. Ronnie Shikapwasha, MP Hon. Deputy Minister of Foreign Affairs Permanent Secretaries Your Excellencies, High Commissioners and Ambassadors Senior Government Officials Distinguished Invited Guests Ladies and Gentlemen It is an honour for me to be here this morning to talk to you on the topic of “Monetary Policy Issues and the Process of Foreign Payments”. This topic provides me with an opportunity to explain the role of the Bank of Zambia in the economy and the process of foreign payments which has been a topical issue. As you may be aware, the Bank of Zambia’s mission is to formulate and implement monetary and supervisory policies that will ensure price and financial system stability. However, in line with the topic above, my presentation this morning will focus on the first aspect of the mission of the Bank, namely, price stability. There are generally three prices of major concern to the Bank of Zambia. These are general prices of goods and services, interest rates and the exchange rate of the kwacha against major foreign currencies. I will now deal with each of these in turn. The central bank deals with general prices of goods and services in the context of inflation.