Currency Shocks and Trade Imbalance: The Gambia’s Dalasi Dilemma

Dr. Foday Joof, an economic expert, has linked The Gambia’s persistent dalasi volatility to its heavy trade deficit and low market confidence, warning that the country’s overreliance on imports and limited exports continues to put pressure on its currency.

In an interview with The Voice, Dr. Joof explained that over 90 percent of goods consumed in The Gambia are imported, creating constant demand for foreign currencies such as the US dollar, the Euro, and the CFA franc.

“Over 90 percent of what people use in the country is imported. This means people and businesses need foreign money, like US dollars, euros, or CFA francs, to pay for these goods. Since the dalasi cannot be used to buy things from other countries, there is a high demand for foreign money.

Dr. Joof added that rising import costs have worsened the situation, as more dalasi are needed to buy the same amount of goods. He pointed out that the dalasi weakening against the CFA franc is particularly concerning, given The Gambia’s extensive trade ties with neighboring Senegal.

“The CFA franc has become stronger compared to the dalasi because The Gambia trades a lot with Senegal, which increases demand for CFA francs and puts more pressure on the dalasi,” he explained.

Joof noted that even though the dalasi is the only legal money in The Gambia, many local markets, especially at places like the Tanji beach market, traders prefer using CFA francs over the dalasi, expressing concerns over currency trust. “This happens due to people’s preference to hold CFA, and which may undermine the dalasi’s role as the country’s legal tender,” he stressed.

The Economist further emphasized that a currency’s value is largely based on public confidence. “Money is only worth something when people believe in it. If people lose trust in the dalasi, they may prefer to hold foreign currency, which causes its value to depreciate even more,” he said.

To help change the situation, Dr. Joof urged a national focus on local production in export-oriented sectors. “Without producing and exporting goods, the dalasi cannot remain stable. Sectors like farming, fishing, and small-scale industries hold significant untapped potential to boost exports. “We don’t print foreign currency, why must we earn it?” he added.

He also noted that since 2024, the dalasi has shown remarkable resilience against the U.S. dollar, maintaining a relatively stable range between 71 and 73 dalasi. Dr. Joof described this as a “miracle,” given the series of compounding shocks impacting the currency. Under normal circumstances, the dalasi should have depreciated much further,” he observed.

Dr. Joof stated that while the Central Bank can intervene to stabilize the dalasi in the short term through foreign currency intervention, policies aimed at enhancing credibility, such as measures, offer only temporary relief. “Long-term stability depends on broader structural reforms beyond monetary policy,” he asserted.