Bank of Papua New Guinea intervenes on kina


BAI-logo-no-text-100x100_backgroundThe Bank of Papua New Guinea this week made a surprising move to support a weakening currency, at the same time acting to restrict the margins being made by the country’s foreign exchange dealers.

Responding to what its Governor Loi M Bakani described as ‘a market failure in the trade and transacting of foreign currency,’ the central bank issued an instruction to the country’s banks, and other foreign exchange dealers, to restrict their US dollar exchange rates to a ‘trading band’ 75 basis points (or US cents) either side of the reserve bank’s official US$0.4130 reference rate.

Governor Bakani did not go into detail as to the nature of the market failure.

Kina rises in value

In effect, this instruction instantly raised the value of the kina against the US dollar by around 20%, as it was trading as low as US$0.340 only last week.

Under the bank’s new instructions, foreign exchange dealers will be obliged to buy and sell the kina at no less than US$0.4055 and no more than US$0.4205. Should the bank’s reference rate change, the 75 basis point trading band will apply to the new price.


‘This change should not in any way affect the smooth functioning of the foreign exchange authorised dealers; the banks, financial institutions and money changers dealing with foreign currency,’ said Governor Bakani in attempt to reassure the markets.

‘We are advising our clients, in particular those who have been looking to purchase foreign currency at a better rate, to now do so … A 20% rise in the value of the kina doesn’t happen every day.’

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‘The trading band has no reflection on the stability of the banking system and the Central Bank’s capacity to serve the foreign currency needs of the country.’

‘We still maintain a floating exchange rate regime where the inter-bank rate is determined by the supply of and demand for foreign currency in the market.’

Impact on liquidity and bank margins

PNG’s largest bank, BSP, issued a statement this week relating the changes.

‘Short term liquidity may be adversely impacted as customers get used to the new levels and BPNG has provided assurances that they will be monitoring the situation,’ read the statement. ‘We are advised that BPNG will review the trading band in the next three to six months.’

‘The move will severely impact the income of the banks, which have been making very substantial earnings from their foreign exchange activities,’ Dominic Beange, Investment Fund Manager at Kina Funds Management Ltd, told Business Advantage PNG.

Time to buy

The Central Bank today bought US$50 million, indicating it was not against using the usual central bank tactic of using reserves to buy the currency.

‘In the end, market forces should come to bear,’ said Beange.

In the meantime, what is bad news for the banks, however, may be good news for those looking to buy foreign currency.

‘We are advising our clients, in particular those who have been looking to purchase foreign currency at a better rate, to now do so,’ says Beange. ‘A 20% rise in the value of the kina doesn’t happen every day.’


  1. Hi Debra, may I ask if you ultimately successfully exchanged all Pgk and if so how was it done? thank you

  2. Debra Krueger says

    Hi. I have a question. first my name is Debra Krueger and I have communicated with the BPNG, the manager David Lakatini. I had some problems with the exchange of the 20 Kina paper banknotes with Wells Fargo, the branch I use to have an account with. They are the p-36 banknotes and Wells Fargo still had them as exchangeable currency. After about a month and 5 foreign currency exchanges, the manager of that branch told me there was a problem with this Kina as it was now obsolete in PNG. She said the banknotes were being returned to their branch and that I owed them $10106.00 for the money they paid me when I exchanged them. Using the SWIFT banking system,I cannot believe that it was a month before they discovered there was a problem. I find this hard to believe. I spoke with their foreign currency exchange headquarters after I was notified of this problem, and they were not even aware that there was a problem and as I thought, thought something was a little suspicious there. After some research, I discovered that these paper banknotes were removed from circulation and replaced with polymer. No change in value. But Welks Fargo was not aware of this, and the notice I presume was placed in your local public media, was sent out to the people of PNG who use this currency on a daily basis. And I saw that the time limit to exchange the paper for polymer was Dec., 2013. Mr. Lakatini instructed me to mail the banknotes I had in my possession to him via registered mail for exchange. I shipped them via certified as the USPS said we could not ship registered to PNG. About 12 days later, they arrived in customs where they opened the parcel and informed me that there was only K24160 in the box when I had shipped K54160. K30000 had been stolen or lost en route. Then Nr. Lava of customs needed 10% fees which left me with less than K22000 to be exchange. The parcel sat I customs for quite awhile as the tracking of the package says it arrived at BPNG on June 26, 2014, over a month since I shipped it. I do not bank with Wells Fargo anymore. I now have a banking account with Bank of America for wire deposit. Mr. Lakatini told me that the central bank still accepted paper banknotes for exchange. Mr. Lava in customs was able to get his customs fees paid with these paper banknotes. I sent everything Nr. Lava and Mr. Lakatini requested as to proof if identity and where I purchased these banknotes. Everything is legitimate, I do not want to mail these banknotes if I can avoid it, but Bank of America has to convert the Kina to USD, deposit it to my account, and send the Kina for exchange. However, most financial institutions are very picky about what currencies they will exchange and obsolete currencies are usually refused. I have not heard anything further from BPNG about the money they had received (less than K22000) since June. I did not have a bank account then but I do now. I was wondering what happened to the Kina I owned that I sent to the central bank for exchange. I have not received anything nor have my communications been answered. I need that money in USD badly and I told the manager what my situation was. I have Kina I picked up from Wells Fargo that they said had been returned a su redeemable and had stored in their vault. I need to eps hip this for exchange, but what should I do? Is there a particular foreign currency international exchange company that works with central banks that these banknotes can be sent to and they make sure that everything is handled right? One that will help exchange obsolete currency? Then I wonder if these are the same banknotes I had exchanged previously as they were not in my possession for a long time and if they have been sent for exchange if the SWIFT system uses the serial numbers on the banknotes. Please can you check into Ymir matter and advise me? And also check on what happened to the Kina that arrived at the BPNG for exchange but I was never paid for. Thank you. Debra Krueger

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