Zambia’s Dollar-Usage Curb Underpins World-Beating Kwacha Rally

Picture Credit: by Bloomberg

Zambia’s currency has carried a strong year-end rally into the opening weeks of 2026, emerging as one of the world’s best-performing currencies after decisive policy action by authorities to curb the use of foreign exchange. A recent directive encouraging companies to reduce dollar transactions and convert foreign holdings into local cash has significantly boosted demand for the kwacha.

Since the start of last month, the kwacha has appreciated by nearly 10% against the US dollar, outperforming all other currencies tracked by Bloomberg. The rally accelerated at the start of the week, with the currency posting its largest single-day gain since October 2023 and climbing to a fresh two-year high. The sharp move reflects a wave of dollar selling sparked by market uncertainty following the central bank’s December 26 currency directive.

Market participants note that corporate activity has played a key role in the surge. Companies have been actively converting foreign exchange into kwacha to meet statutory tax obligations and finance operations at the start of the new year. This increased demand for local currency has amplified the impact of the policy measures, tightening dollar liquidity in the market.

Picture Credit: by Xinhua

External factors have further strengthened the kwacha’s position. Copper prices have surged to record levels, providing a powerful tailwind for Zambia, Africa’s second-largest copper producer. Rising export revenues have improved foreign exchange inflows and reinforced confidence in the local currency. In addition, the introduction of yuan-denominated mining tax payments has reduced reliance on the US dollar. With authorities expecting the Chinese currency to account for a growing share of settlements this year, Zambia’s foreign exchange dynamics are undergoing a notable shift.

The currency rally has also lifted sentiment in credit markets. Zambia’s long-dated dollar bonds have edged higher, reflecting improved investor confidence linked to currency stability and supportive commodity fundamentals. Together, policy discipline and favorable global conditions have positioned the kwacha strongly at the start of 2026.