Unravelling the factors influencing street currency exchange and its repercussions on monetary policy in the DRC: A cross-study of contextual aspects and statistical inference

Currency exchange is experiencing a rapid surge in the Democratic Republic of Congo, where the foreign exchange market is dominated by street money changers. Data collected from 156 money changers in the city of Kinshasa and from the Central Bank of Congo (BCC) helped identify, through the chi-square test, the logit model, and the VAR model, the factors influencing the exchange rate and its repercussions on monetary policy. The results of the chi-square test indicate that currency exchange is more commonly practiced by men, generally under the age of 45. The same results suggest that 69% of respondents are educated. In addition, street money changing is the main activity for 81% of them, and 72% have been practicing it for more than ten years. The results of the logit model suggest that the exchange rate is influenced by unemployment, profitability, and the setting of the exchange rate. Furthermore, the results of the VAR model on the impact of street currency exchange on national monetary policy indicate that the parallel exchange rate, the amount of money outside the banking system, and past inflation variables explain 67% of the inflation rate, or 0.678057. In particular, the parallel exchange rate is the most significant variable in the model, with a t-test value greater than 2, i.e., 2.85281, followed by non-bank currency circulation, which explains it at 0.2886.