Reserve Bank of Malawi, govt need to be serious against quoting in foreign currency, illegal forex dealings

It is common practice for regulatory bodies and government to warn the public and companies about malpractices or other unacceptable behaviour. However, when such a warning is issued regularly without any action, the warning loses its meaning and the institutions run the risk of not being taken seriously.

Foreign currency

The Reserve Bank of Malawi (RBM) and the government have been issuing a warning to companies and individuals not to quote prices in US dollars and tourist operators not to illegally dea lin forex for more than 20 years.  There is nothing new that RBM and government are saying in their latest press release. This disease to quote in foreign currency started in 1996 when the value of the kwacha started to depreciate rapidly against other currencies.

Former RBM governor Matthews Chikaonda issued a press statement in March 1998, abhorring the practice and urging the public to report such business persons or companies to RBM. His successors, Elias Ngalande and the late Victor Mbewe, also spoke against quoting in foreign currency.  At one point CAMA president John Kapito made a scathing attack at RBM for the failure to arrest the situation. Today, government and RBM are still talking about the same issues. Are they really serious about solving the issues?

I have also written several articles on the same issues. For example, On 4 September 2000 (almost 18 years ago) I wrote in The Nation that quoting prices in dollars or demanding payment in forex for goods and services consumed locally is illegal. I also wrote a similar article in Malawi News 4-10 March 2006 in which I called upon the central bank to act on people and institutions that quote in foreign currency. Why is RBM and government going in circles and coy to take action against the culprits even today? Malawi does not use dollars as legal tender. So it does not make sense for individuals (including consultants) and companies to be quoting in forex.

Quoting in forex also fuels inflation as any slight movement in the exchange rate drives prices upward. This partly explains why prices of goods and services sometimes increase unexpectedly. If companies want to hedge against the risk of currency fluctuation, then they should try currency option contract.

We know that some corporations involved in this malpractice are influential and may even have political connections and our regulatory authorities are afraid to take action against them for fear of stepping on people’s toes. But just issuing out the same warning for more than 20 years without solving the problem is a problem in itself.  In fact, it just damages the credibility of our regulatory authorities. People lose trust and confidence in our regulators because they are not taken seriously.

Secondly, it sends the “business as usual” messageto the individuals and companies and so, they do not fear the law. This is precisely the reason the malpractices have continuedfor more than two decades. They have become so entrenched that individuals and corporations do not respect or fear the law because they know authorities are just good at talking. Who is better placed to end the malpractices than RBM and government? We cannot be talking about the same thing for many years. For how long will authorities warn corporations and individuals against contravening the law? The warning has lost its meaning.

The malpractices would have ended a long time ago if RBM and government had been taking action against errant individuals and companies who contravene the Exchange Control Act. The act has now become irrelevant because it is not enforced.When will RBM begin to take appropriate action? Perhaps, RBM should also embark on a massive campaign educating members of the public to refuse to be quoted in US dollars.

Follow and Subscribe Nyasa TV :

Sharing is caring!

Follow us in Twitter
1 Comment
oldest most voted
Inline Feedbacks
View all comments
Nox Nthambi
Nox Nthambi
4 years ago

This country lacks leaders who can make bold decisions for the betterment of the country. Does it mean the country has two currencies thus Malawi Kwacha and US Dollar. The RBM Governor and the government machinery is sleeping on the job. Its better to abolish the countrys’ currency and we should be using foreign currencies because we are obsessed by the foreign currencies other than our own currency the Kwacha. As consumers we are victims of day light robbery on pricing e.g. DStv, Computer etc at the expense of Malawi Kwacha. Wake up from your sleep Mr Governor. May be… Read more »

Read previous post:
DPP’s field marshal Ben Phiri back in frontline politics: Says Chakwera not fit to be Malawi leader

The ruling Democratic Progressive Party (DPP) director of field of operations, Ben Phiri, has engaged an accelator in frontline politics ...