What it means
Currency codes are three-letter abbreviations set by the international standard ISO 4217, and they allow banks and businesses to describe currencies without confusion. The first two letters usually identify the country and the third identifies the currency, so GMD is The Gambia's dalasi.
You will see the code on invoices, price lists and foreign exchange screens. The dalasi was introduced in 1971, when it replaced the Gambian pound, and it is issued by the Central Bank of The Gambia.
Its value against other currencies moves with the market, and the central bank may take steps to influence it. A business operating there will see the rate change, sometimes noticeably, over months and years.
The Gambian economy relies heavily on agriculture, with groundnuts (peanuts) as an important crop, and on tourism and remittances sent home by Gambians working abroad. These sources of foreign currency matter, because they influence the supply of dollars, pounds and euros available to exchange for dalasi.
A bad harvest or a quiet tourist season can therefore affect the exchange rate. Companies trading with The Gambia face the same questions as with any smaller currency.
They must decide whether to invoice in dalasi or in a major currency such as the dollar, how to hedge exposure, and how easily funds can be moved out. Liquidity can be limited, so large conversions may need to be planned with a bank.
For accounting, a business with a Gambian subsidiary or customers must translate dalasi amounts into its reporting currency, using the rates specified by its accounting policy. Gains and losses arising from rate movements are reported in line with the relevant standards.
Always use a current, reliable rate source, because rates quoted in different places can differ. Staying informed about local conditions is part of managing the risk.
Inflation, interest rates, harvest results and tourism numbers all feed into the exchange rate over time. Companies with regular dalasi exposure often ask their bank for a regular market update and review their pricing at set intervals.
In practice
Real-world examples.
Example
A hotel group in The Gambia sells rooms to European tour operators in euros but pays its staff and local suppliers in dalasi. Its finance manager watches the exchange rate closely, because a weaker dalasi lowers the cost of local expenses in euro terms.
Example
A trading company exports groundnuts and receives payment in dollars. The treasurer converts a part of each payment into dalasi to pay farmers, and uses forward contracts to fix the rate for the rest. This gives her confidence about the cost of the next harvest purchase.
Example
A software firm in Europe hires a developer in The Gambia and agrees a salary in dollars. The developer converts the money into dalasi each month, and the firm reviews the arrangement once a year to check the pay remains fair after rate movements.
Formula
Calculation
Amount in GMD = Amount in dollars x Exchange rate (GMD per $1) x (1 - Provider margin)
The rate below is purely illustrative and is not a current market rate. Suppose the rate is 60 dalasi per $1 and a business converts $5,000. At the quoted rate it would receive $5,000 x 60 = 300,000 dalasi. If the provider's margin is 2%, the business receives 300,000 x (1 - 0.02) = 300,000 x 0.98 = 294,000 dalasi. The margin therefore costs 6,000 dalasi, equal to $100 at the quoted rate.Case study
Seen in the real world.
Sunbird Safaris is an illustrative, fictional tour operator based in The Gambia. It collected most of its income in foreign currency from overseas visitors, but paid guides, drivers and lodges in dalasi.
When the dalasi weakened, the company's income in dalasi terms rose, but suppliers began raising their local prices to compensate. The finance manager noticed that the benefit was smaller than expected, because a 10% weaker dalasi was followed by about 6% higher costs, a net gain of around 4%.
She set up a policy to review prices every quarter, and held a share of cash in a foreign currency account to protect against sudden shifts. The illustrative lesson is that currency movements change both revenue and costs, so the net effect needs to be measured.
Watch out
Common mistakes.
- Assuming a published exchange rate is the rate that will be applied to a real transaction, when banks add margins and fees.
- Ignoring currency risk when the business earns in one currency and pays costs in another.
- Using an old exchange rate for budgeting, when rates can change significantly over months.
Questions
People also ask.
What does GMD stand for?
It is the three-letter code for the Gambian dalasi, which is the official currency of The Gambia.
Which institution issues the dalasi?
The Central Bank of The Gambia issues the currency and sets monetary policy.
How is the dalasi divided?
One dalasi is made up of 100 bututs, in the same way that a dollar is made up of 100 cents.
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