The Reserve Bank of Malawi (RBM) and financial market expert have differed on how best to curb illegal foreign exchange trade perpetrated by financial market vendors.
While the central bank is condemning the illegal forex trade saying it should be curbed through law enforcement agencies, some experts feel the best way is to help those involved to formalise their trade.
The expert argued that the illegal foreign currency trade distorts the real exchange rate pricing value while becoming a conduit for money laundering activities, which eventually harm the economy.
In 2016, RBM said it was working towards formalising the forex black market to know how much cash is coming into the country and being spent.
In a written response on Monday, RBM spokesperson Onelie Nkuna said ordinarily, a foreign exchange black market cannot and should not be formalised because it is illegal.
She clarified that what the 2016 statement insinuated was that the central bank will create more avenues through which foreign exchange coming into the country is captured and recorded to know how much forex comes into the country.
Nkuna said: “As an illegal arrangement, foreign exchange black market provides a conduit and breeding ground for money laundering activities and illegal externalisation of foreign exchange, resulting in shortages in the market which feed into panic buying and price distortions.”
She explained that as an unrecorded or unregistered market activity, RBM can only rely on law enforcers to help in cleaning up the illegal activity.
While describing the involvement of law enforcers as an ongoing process, Nkuna said such efforts call for continuous deployment of people and financial resource allocation to achieve results.
She said the central bank will continue collaborating with other stakeholders, including law enforcers to ensure that illegal foreign exchange activity is curbed.
On his part, Centre for Financial Inclusion and Literacy Consultancy executive director Abel Mwenibanda said in a statement that formalising the informal forex trade will help the regulator to effectively tabulate how much cash is coming into the country and spent to stabilise and grow the economy.
He believes the country stands to benefit from the dividends of the move as the current illegal players will be regarded as legal economic units.
Said Mwenibanda: “It will help if RBM enacts tailor-made guidelines and directives to fit inter alia the financial status of the concerned dealers.
“This will enable and incentivise them to register with the regulator. Malawi may learn from its counterpart Tanzania in which small and larger forex traders are operating legally both in remote and urban areas.”
In 2016, the Financial Intelligence Authority (FIA) also spoke of the need to ensure that parallel foreign exchange traders be regulated and issued with identities to trade freely than ignoring the sector which keeps growing.
But FIA spokesperson Masautso Ebere, in a written response, pushed the issue back to RBM, saying as the regulator of financial institutions, the central bank is obliged to manage such concerns in the financial market.
Malawi Police Service national spokesperson James Kadadzera was yet to respond to a questionnaire on what the fiscal police was doing to curb illegal forex trade which is done openly in the country’s borders and cities.
As of Monday this week, banks were buying the dollar at around K752 and selling at K767 while spot-checks on the parallel market found that forex traders were illegally buying the dollar at K800 and selling it at K850.
The existence of the forex black market remains a contentious issue. However, some people argue that it benefits some big fish within the public and private sectors as they prefer getting higher exchange rate than the conventional financial market.