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. in simple terms, inflation may be defined as the change in the general price level of goods and services. however, in every day usage, inflation may be defined as “ too much money chasing too few goods ”. describing inflation this way makes it easier to link it to monetary policy which is the control of money supply in an economy. the bank of zambia is concerned that inflation has remained stubbornly high for quite sometime now. as at end - june 2005, inflation was at 19. 2 % which we consider too high to foster sustainable economic growth. the poor weather patterns over the last agricultural season resulted in low crop output, particularly that of maize, which induced inflationary pressures. the unyielding rise in world oil prices on account of high demand from china and india, due to high economic activity, disruptions in supply, arising from war in the middle east, as well as processing capacity constraints in many oil consuming countries have also caused a general rise in the domestic prices of petroleum products thereby increasing the cost of domestic production. in order

quarter under review, the finscope 2009 consumer survey report was launched to the public in lusaka and ndola. the survey findings indicated that agricultural activities still remained a major source of income for most zambians yet the sector was largely underserved. overall, there was a marginal increase of 3. 6 percentage points in financial access to 37. 3 % in 2009 from 33. 7 % in 2005. developments in banking, currency and payment systems during the quarter, there was a continued improvement in the availability of electronic payment options. the number of point of sale ( pos ) terminals increased by 3. 8 % to 1, 033 terminals ( quarter 2 2010 : 995 ). the volume of pos transactions also increased by 15 % to 199, 817 ( quarter 2 2010 : 173, 606 ) while the values increased by 13 % to k86 billion ( quarter 2 2010 : k76 billion ). the number of automated teller machines ( atms ) increased by 4 % to 468 atms ( quarter 2 2010 : 450 ). the volume of atm transactions also increased by 11 % to 6, 333, 073 ( quarter 2 2010 : 5, 697, 122 ). the bank would like to continue urging the public to use electronic payment methods as they provide a more convenient, safer, efficient and effective way of making payments. the volume and value of cheques returned unpaid on account of insufficiently funded accounts continued to decrease following the issuance of the directives on dishonoured cheques and direct debit instructions by the bank of zambia in the second quarter of 2010. the volume of unpaid cheques decreased by 15 % to 4, 202 ( quarter 2 : 4, 929 ). the public is advised to ensure that they have sufficient funds on their accounts whenever they issue cheques in order to avoid charges. economic reform programme an imf mission was in zambia from 2nd to 15th september, and 28th october to 3rd november 2010, to conduct the 5th review under the extended credit facility ( ecf ) arrangement. overall, the mission was satisfied with the programme performance and reached agreement with the zambian authorities on a set of macroeconomic policies and structural measures for the remainder of 2010 and for 2011. the policies and structural measures would pave the way for the completion of the fifth review of the ecf arrangement, subject to approval by the imf ’ s executive board. total disbursed poverty reduction budget support ( prbs ) in