Thursday, May 19, 2022

Valuing the Malawi Kwacha

Challenged by the ever depreciating value of our currency based on several factors on the forex market and other economic factors, I thought I should consider using the value of the metal used in minting our basic coins as determinants of the cost of the Malawi Kwacha. In other goods and services, we get to have the cost of raw materials and cost of production as the determinants of the cost price of a product. I thought the cost of the metal used for the coins as a raw material can determine the cost price of the Malawi Kwacha. 

According to the Reserve Bank of Malawi and Numista Coin Catalogue, the Malawian One Kwacha coin is made of 2.83 grams of stainless steel. Stainless steel is said to cost at least $3 per pound as of 2018 according to this article:

Steel prices change daily. They are primarily driven by supply, demand and energy prices. Galvanized steel costs a few cents more per pound than regular structural steel. Stainless steel costs four to fives times much as galvanized steel in material costs. Structural steel is holding somewhere between 30 to 80 cents per pound, while stainless steel is at least $3 per pound. 


So the maths go as follows:

One Kwacha weight = 2.83 grams
Cost of stainless steel today = $3 per pound.
1 pound = 453.59237 grams.

2.83 grams = 1 pound x 2.83 grams / 453.59237 grams = 0.006239082019832 pounds

now if 1 pound stainless steel costs  at least $3,

0.006239082019832 pounds = $3 x 0.006239082019832 pounds/1 pound = $0.0187172460594961

One Malawi Kwacha costs at least $0.0187 to four decimal places.

On Google, MWK1 to USD gives K1 = $0.0012. This seems to be way too lower than the cost price of the coin.

One US dollar should cost at most

$1 = K1 x $1/$0.0187 = K53.4759

If we are to go by the cost price, K1 is at least $0.0187 instead of $0.0012 and $1 is at most K53.4759 instead of K815.

It is said that the value of the currency is determined by the supply and demand but that can't be the only determinant. The Cost Price plays a big role in deciding the minimum selling price of goods and services to avoid making losses. As such, where the Malawi Kwacha coin is made of 2.83 grams of stainless steel, and the price of stainless steel is at most $3 per pound, the Malawi Kwacha can't be valued at less than $0.0187 and can't be exchanged at more than K53.4759 per dollar.

The cost price of the coin does not just include the value of stainless steel which is the raw material, but there is a cost of minting the coin involved. which means that the value of one kwacha can be more than $0.0187 and the dollar lesser than K53.4795. These lower bound and upper bound values should determine whether an exchange is possible or not. Otherwise, why should we sell so cheap? We don't have to sell if we are selling at a loss.

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