The Economics Association of Malawi (Ecama) says the Reserve Bank of Malawi’s (RBM’s) new restrictions on physical foreign currency holdings could improve forex availability in the formal market.
The association, however, cautioned that their success will depend on addressing incentives that continue to push holders towards informal channels.
Under three foreign exchange notices published on September 18 2026, RBM has restricted individuals from physically possessing more than $1 000 in foreign currency without its permission.
The central bank also requires anyone taking or sending more than $1 000 in foreign currency outside Malawi to show that it was obtained from an authorised dealer or obtain RBM permission, while the amount of Malawi kwacha that can be taken or sent abroad without permission is limited to the equivalent of $5 000 for cross-border traders and $100 for other travellers.
Ecama president Bertha Bangara-Chikadza said restricting physical forex holdings could reduce the amount of foreign currency circulating outside the banking system by encouraging individuals and businesses to deposit their holdings with banks.
She said this could improve formal-market liquidity, but the wide gap between official and parallel-market exchange rates remains a major disincentive for forex holders to use formal channels.
“The success of this venture, however, hinges on the incentives that are available for individuals to deposit the forex. For instance, the large gap between the parallel and official exchange rates in the country is a disincentive for this move because people prefer the informal channels,” Bangara-Chikadza said.
Bangara-Chikadza, also an economics lecturer at the University of Malawi, said enforcement, particularly at borders and across the financial system, would be important, but cautioned that controls would be effective only if legitimate users can readily access forex through formal channels.
She said people could, otherwise, continue buying smaller amounts through unofficial channels which, cumulatively, could remain significant.
Financial Market Dealers Association of Malawi president Leslie Fatch agreed that the restrictions could improve market liquidity by discouraging people from keeping foreign currency outside the formal financial system.
“The introduction of the limits should assist in reducing hoarding of forex which we believe would positively impact market liquidity,” he said.
Fatch, however, said effective enforcement mechanisms would be critical to ensuring people do not continue hoarding foreign currency.
Scotland-based Malawian economist Velli Nyirongo said the restrictions could similarly improve circulation and retention of foreign currency within the formal financial system, but warned that they could also produce unintended consequences.
He said the measures could encourage transactions through banks and authorised dealers and make available forex more visible, but their effectiveness would depend on confidence in banks, access to forex for legitimate requirements and whether the official exchange rate reasonably reflects market conditions.
“If households, businesses and investors perceive greater restrictions on accessing or moving foreign currency, they may respond by holding more cash outside the banking system, using informal channels or reducing the amount of foreign currency brought into the formal market,” Nyirongo said.
He also warned that remittances and cross-border transactions could become more expensive or migrate towards informal channels, particularly where there is a substantial difference between official and informal exchange rates.
The reactions come as Malawi continues to face persistent forex shortages. RBM’s July 2026 Monthly Economic Review shows total foreign exchange reserves declined to $600.6 million, equivalent to 2.4 months of imports, from $616.1 million or 2.5 months in June.
The July position was also below the $607.7 million, equivalent to 2.4 months of imports, recorded in July 2025.
Despite seeing potential benefits from the controls, Bangara-Chikadza and Nyirongo agreed that regulating existing forex cannot resolve the underlying shortage.
Bangara-Chikadza said the measures need to be complemented by policies to increase exports, investment and remittance inflows.
Nyirongo called for reforms to improve export competitiveness, attract productive capital, strengthen confidence in the formal forex market and reduce distortions between official and market exchange rates.
“The central issue is not simply how Malawi controls the foreign exchange it has, but how it creates the conditions to generate significantly more of it,” he said.
