In this age of uncertainty, the Kwacha's been surprisingly stable

Zambians went to the polls about three weeks ago on the 11th of August to elect a president. Up until now we still have no substantive president as the opposition United Party for National Development (UPND) has petitioned the outcome of the elections. According to the Zambian Constitution, a president-elect cannot be sworn in if there is a petition before The Constitutional Court. The Constitutional Court ruled this past Friday to continue with the process of disposing of the petition into the week starting Monday, 5th September. The petitioners and the respondents each have 2 days to argue out their cases starting tomorrow.

The implication of this is that the country will continue without a substantive president for a fourth week running, something that's not happened since independence (except for the time when Dr. Kaunda reportedly resigned for about a night in 1968).

But what's really remarkable is that in this age of unprecedented uncertainty, the Zambian Kwacha has been surprisingly stable (see Figure 1 below showing the USD/ZMW exchange rate).


                                   Figure 1: USD/ZMW Exchange Rate

                                        Source: Bank of Zambia

There was a slight depreciation in the days leading up to the election. Thereafter, the Kwacha's been relatively stable settling at an average rate of about K10 to the dollar. Between polling day (11th August) and last Friday (2nd September), the rate of change in the Kwacha vis-a-vis the dollar was about -0.5%, a slight appreciation but in effect a zero percent change. This stability is even more remarkable given the wide gyrations experienced last year.

Given that our country is in unchartered waters, you would expect this uncertainty to show up in the exchange rate. But it hasn't, at least not quite yet. So what explains it? I can think of 4 candidate explanations:

1. Central Bank stewardship
Perhaps the Bank of Zambia (BoZ) has been carefully monitoring events and intervening where necessary?

2. Trust in local institutions 
Perhaps the financial markets trust that Zambian institutions are up-to-the task of resolving the dispute?

3. Politics don't matter
Perhaps politics don't matter for the performance of the Zambian foreign exchange market?

4. Inflow of foreign exchange
Perhaps this era of uncertainty has coincided with an inflow of forex such that even though there has been a "flight" away from the Kwacha, the forex inflow has been sufficient to meet the demand for safety?

I don't have enough information to discriminate among each one of these potential explanations. And these might not even be the only factors.

So what gives?