Malawian Kwacha (MWK)

What Is the Malawian Kwacha (MWK)

The term Malawian kwacha (MWK) refers to the official national currency of Malawi. It is abbreviated as MWK in the foreign exchange (forex) market and is commonly represented by the symbol K. The currency is issued and maintained by Malawi's central bank. One kwacha is divided into 100 tambalas. Bills range in value from K5 to K500, while coins are minted in one to 50 tambalas along with smaller kwacha denominations. The currency isn't pegged to any others in the foreign exchange market.

Understanding the Malawian Kwacha (MWK)

The Malawian kwacha is the official national currency of the African nation Malawi. It is issued and maintained by the country's central bank, the Reserve Bank of Malawi. The bank was established by Malawi's parliament in July 1964. Its core mission includes maintaining the country's financial stability by implementing monetary policy.

The kwacha became legal tender in 1971 when it replaced the Malawian pound. Banknotes are printed in K5, K10, K20, K50, K100, K200, and K500 denominations. Coins are also minted in values of K1, K5, and K10 along with one, two, five, 10, 20, and 50 tambalas, where one tambala is 1/100 of a kwacha.

The MWK is a free-floating currency, which means it isn't pegged to any other currency on the foreign exchange market. No other currency is pegged to it.

Special Considerations

Malawi relies heavily on the International Monetary Fund (IMF) for financial support because of its economic instability. As such, the IMF mandates reforms that help direct the economy. The IMF requires structural reforms, including a monetary policy that curbs inflation while keeping positive real interest rates. The IMF also requires:

• Increasing and streamlining spending on infrastructure and social services to fight poverty
• Reforming financial management
• Procuring and implementing other structural reforms

Malawi is implementing these principles—to a certain degree. Much of the rebound in growth was due to an increase in agricultural production, but the reining-in of inflation was largely the result of successful fiscal and monetary policies. But this isn't always possible, especially when the political climate does. This means that changes in power can alter the adherence to these IMF-mandated reforms.

History of the Malawian Kwacha (MWK)

The Malawian government modeled the Malawian kwacha on the Zambian kwacha (ZMK). Kwacha is the Chichewa word for dawn, which symbolizes the dawning of a new era post-independence. As noted above, the kwacha was first circulated in Malawi as the country's official currency in 1971 when it replaced the Malawian pound. The exchange rate at that time was K1 to two Malawian pounds.

In 2005, the Malawian government pegged the kwacha to the United States dollar (USD). An unofficial, black-market exchange rate emerged and came to predominate, diverting USD and other foreign currencies out of official channels.

In 2010 US$1 could buy K150. The central bank liberalized the kwacha two years later, officially devaluing it by 1/3 to draw in enough foreign currency to import more fuel. The kwacha lost more ground to the dollar since then, with an exchange rate of about K725 to $1 in 2018 and K750 to $1 by 2020.

The Malawian Economy

Malawi remains one of the world's most undeveloped countries. The largely agricultural Malawian economy relies heavily on support from the IMF, the World Bank, and other nations as it battles problems with the economy, education, and the spread of AIDS. Because of its dependent position, Malawi often conforms to IMF demands to qualify for loans and other economic programs.

The World Bank reported gross domestic product (GDP) for Malawi at $12.63 billion in 2021. Its annual GDP growth rate was 2.8% and inflation hit an annual rate of 8.6%. Although this doesn't seem productive, the economy has seen much more troublesome data in the past, much of which was due to increases in public debt:

• In 1995, inflation exceeded 83% and reached almost 45% in 1999. The country's inflation rate continues to yo-yo between single and double digits since then.
• The country's annual GDP growth rate has fluctuated from 16.7% in 1995 to as low as -5% in 2001.