Financial Market Dealers Association (Fimda) has warned that the government’s order for ministries, departments and agencies to transfer their foreign currency denominated accounts from commercial banks to the Reserve Bank of Malawi (RBM) will cripple liquidity.
In a written response after The Nation on November 14 2024 published a story under the headline ‘MDAs ordered to move forex accounts to RBM’, Fimda president Leslie Fatch said the move will negatively impact the availability of foreign currency in the commercial banks and the market in general.
He said: “If implemented, the decision will affect the liquidity position of commercial banks, as well as availability of foreign currency in the commercial banks and the market as when converting, the institutions convert the currency with the central bank, which may have other consequences on the market.”
But Bankers Association of Malawi president Phillip Madinga refused to comment on the matter, saying: “We are not in a position to comment because we do not have any formal communication.”
However, anti-money laundering law expert Jai Banda said banks whose foreign currency deposit base is heavily dependent on MDAs will be adversely affected.
He said this may not be the case with banks that depend on the private sector.
“I do not think we can call it nationalisation of forex. If the forex targeted is that generated by the government, then the private sector will still have their forex in the commercial banks,” said Banda.
The country’s Exchange Control Act does not allow hard currency deposits or withdrawals but says all transactions must be Telegraphic Transfers (TTs).
The situation has prompted calls for amendment of the Act in order to boost the forex reserves by incorporating inflows from the black market.
Sources from the banking sector said in practice there is abundant hard currency in people’s houses and warehouses which trades on the black market without any chance of entering the formal market.
Banda backed the calls, saying commercial banks need to allow all forms of deposits, including cash to mobilise all forex on the market.
RBM spokesperson Mark Lungu confirmed the government’s directive in an interview on Wednesday, saying an Executive order is currently in force.
He said he was yet to read the order, but believed that the move could be aimed at shifting the management of forex to the central bank.
Fimda and the National Working Group on Trade Policy recently joined the Economics Association of Malawi in calling for tougher controls on forex amid concerns over the crisis’ capacity to disrupt businesses.
The call comes at a time the country’s import cover has stagnated at about 2.2 months.
