RBM asserting its authority

The decision by the Reserve Bank of Malawi (RBM) to intervene in the foreign exchange market is the best decision it has made in many years. It has been a tendency of speculators to hoard currency when the tobacco season is about to end or has ended.

This has resulted in artificial shortage foreign exchange on the market and brought the country on its knees. Now that RBM has come up with guidelines to control the foreign exchange, this malpractice should be curbed. As Kisu Simwaka rightly pointed during an Economics Association of Malawi (Ecama) debate, “guidelines for foreign exchange activities are aimed at bringing sanity in the forex market.”

Unfortunately, RBM has paid a blind eye to speculative practices for a long time. The other problem is that RBM has been too slow to act to the point where foreign exchange players have behaved the way they please while RBM just watched. As a financial regulator, RBM has an obligation to ensure that players in the foreign exchange market do not engage in unfair practices.

While it is appreciated that the economy does not generate enough foreign exchange, and; therefore, the availability of forex is erratic, speculation has also been responsible for artificially creating shortage of foreign exchange. This time around, RBM has to be commended for initiating the new regulations to curb the malpractice, a development that would obliterate an appetite for speculation and prevent speculators from taking advantage of the weak economy.

For a long time, the way RBM has handled economic issues has been more theoretical than practical. Some of its decisions have not only damaged the economy, but also fuelled inflation.

For example, it was a huge mistake to float the kwacha in 2012 when Joyce Banda became president. The kwacha depreciated by almost 50 percent. The results were obvious: prices of food and services just soared to beyond the reach of many ordinary people. It should be repeated that it is suicidal to float the currency if the economy is not generating enough foreign exchange from its exports. The scenario is worsened by speculation.

The policy of managing foreign exchange rate adopted by RBM during Bingu wa Mutharika’s presidency was not bad at all. Malawi is not ready for a floating exchange rate. Some economic policies have been adopted to please donors. Those who advocate for free exchange rate believe in the power of the market, that the real value of the kwacha is determined by supply and demand. Many also believed the policy will ensure that there will always be foreign exchange on the market. But the reality on the ground proves that the economy does not export enough to generate enough foreign exchange and that some organisations can actually manipulate the market for their own advantage and to the detriment of the economy.

RBM should now intervene in the financial market to bring down lending rates to a reasonable level and ensure that financial institutions pay reasonable interest on depositors’ investment. The spread is too huge.