Angola poised to abandon currency peg against dollar

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Angola is to abandon the kwanza currency peg against the US dollar, joining a long list of oil producers that have floated or depreciated currencies to end dollar shortages caused by sliding oil prices.

Scrapping the dollar peg indicates that the central bank will allow the currency to float freely, and commercial banks would no longer be subject to an agreement with the central bank not to bid for dollars above 78.

Angola relies on oil for almost 90 percent of its income, meaning the country's foreign exchange market is extensively subject to the oil price fluctuations. The country devalued its currency by 4 percent to 78 to the dollar in April due to its shrinking dollar reserves and started to limit dollar sale in May.

VCG Photo

The country devalued its currency by 4 percent to 78 to the dollar in April due to its shrinking dollar reserves and started to limit dollar sale in May.

Angola's compelling decision to float its currency to revive the economy leads to the debate about the excessive power of the petrodollar and the very dollar hegemony.

To circumvent US dollar trade, the world's leading crude exporters, such as Russia, Venezuela and Iran are ready to accept China's gold-yuan-oil scheme, part of China's upcoming oil futures contract.

Angola shipped 27.1 million tons of oil to China in the first half of 2017, making it China's second-largest oil supplier, according to energy consultancy Wood Mackenzie.

Angola's Finance Minister Archer Mangueira said late Wednesday that he would also “renegotiate our debt with our main partners throughout 2018.”

Analysts said that Angola is most likely to focus on talks with China, one of the country's major external creditors.

Meanwhile, China's expected growth in oil consumption may prompt Angola to accept pricing oil in yuan.

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Source(s): Reuters