BWP (Botswana Pula): Meaning, History, Forex Market

What Is the BWP (Botswana Pula)?

BWP is the ISO currency code for the official currency of Botswana, the pula, and the symbol "P" represents it. The Bank of Botswana issues and manages the pula. Pula means "rain" or "blessing" because rain is so scarce in Botswana and is considered valuable. The pula is made up of 100 thebe, which means "shield."

Understanding the Botswana Pula

The Botswana pula is pegged to a basket of currencies, which operates using a crawling band exchange policy using special drawing rights (SDR) and the South African rand (ZAR) as reserve assets. 

Special drawing rights are an international monetary reserve asset issued by the International Monetary Fund (IMF). They operate as a supplement to existing money reserves and act as a reserve asset for member countries. Reserve assets include currency, commodities, or other financial capital held by central banks, to restore confidence in the financial soundness of the country's money if needed.

According to World Bank data, Botswana registered 2.97% annual GDP growth in 2019 and a 2.77% increase in inflation.  Botswana's economy is fueled primarily by mining, tourism, cattle, textiles and salt.

History of the Botswana Pula

At the time of its independence in 1966, Botswana (along with neighbors Lesotho and Swaziland) continued to use the South African rand as its currency as a member of the Rand Monetary Area (RMA). In 1973, the four countries began negotiations on a new currency and banking treaty, known as the Rand Monetary Area agreement, that would have allowed the smaller economies to issue their own national currencies while continuing to accept the rand as legal tender. However, before the pact was signed in 1974, Botswana withdrew from negotiations and announced its intentions to set up its own central bank. 

The pula debuted on August 23, 1976, a day that is celebrated annually as Pula Day. The currency was initially pegged to the U.S. dollar, with P1 equaling $1.15. The South African rand was also pegged to the U.S. dollar at the same rate, implying parity between the pula and the rand. The pula basket was introduced in 1980 after the rand moved off its dollar peg.

The Botswana pula is fully convertible after foreign exchange controls were abolished in 1999. Before the rand, Botswana used:

• British pound sterling from 1885 to 1920
• the South African pound from 1920 to 1961
• the South African rand from 1961 to 1976

The pula has gone through many changes since its debut in 1976. The currency launched with four bank notes in the denominations of P1, P2, P5 and P10, along with five coins issued in denominations of 1t, 5t, 10t, 25t and 50t. Over the years, the government introduced higher value notes and coins, such as P1 and P2 coins, owing to their more frequent use.

In 2000, the Bank of Botswana introduced a P5 coin and a new P50 note, which features the portrait of Sir Seretse Khama, the nation's first president. Also introduced that year was the P100 note bearing the images of the three chiefs—Bathoen I, Khama III and Sebele I—who obtained British protection over Bechuanaland (what is present day Botswana).

In August 2009, the Bank of Botswana introduced a new family of banknotes, including a new P200 denomination. The P200 note features an image of a woman teaching students, which is meant to emphasize education and the contribution of women to the country's development.

BWP in the Forex Market

Assume the rate of the USD/BWP is 10.86. This means it costs 10.86 pula buy one U.S. dollar.

If the rate rises to 12, that means the pula has lost value relative to the USD, since it now costs more pula to buy the U.S. dollar. If the rate falls to 9.5, the pula has strengthened in value relative to the USD, since it now costs fewer pula to buy the USD.

To find out how many U.S. dollars it takes to buy one pula, divided one by the USD/BWP exchange rate. This will give the BWP/USD rate. For example, if the rate is 10.86 for the USD/BWP, then the BWP/USD rate is 1/10.86, or 0.09208. This means it costs $0.09208 to buy one pula.