The Reserve Bank of Malawi (RBM) is set to start conducting foreign exchange auctions as a strategy for determining the kwacha’s real market value.
The move comes at a time the country is facing forex shortages and stakeholders are calling authorities to realign exchange rate to the market value.
In a statement, the Bank confirms introducing periodic foreign exchange auctions with the aim to discover, determine and maintain a market clearing price for the local currency against the US dollar.
According to the statement, authorised dealer banks will be submitting bids to sell foreign exchange to the RBM at exchange rates freely determined by the participating banks.
But former Finance Minister, Joseph Mwanamvekha, is warning the central bank to exercise caution as such a move could fuel further depreciation of the currency.
“This policy regime was pursued by the Reserve Bank of Malawi in early 1990s up to 1995 during the Structural Adjustment Programmes (SAPs). I was at the Reserve Bank of Malawi at that time and was working in Financial Market Operations Department and was part of the team managing this policy regime. It failed miserably and was later abandoned,” Mwanamvekha recalled.
Apart from the former minister, other economist financial savvy people have expressed concern with the move, most arguing its wrong move by the central bank.
Others have described the move as a sign of panic by the current governing administration in its economic management.
Concurring with Mwanamvekha, Finance Consultant Twimi Kamwambe has described the move as impractical, calling it;
“Textbook theory, not practical in Malawi where shortage means a commodity can be priced to infinity at the mercy of the sellers’ greed/ appetite for profit”.
Has gone on to warn that this would realign the official market to the parallel market, a development that will further push up the parallel market price.
Also commenting on the development is former Reserve Bank Governor Dalitso Kabambe, who is also against the move
“This is another step in a wrong direction. It is the lack of financial prudence and sound economic principles that has forced this administration to resort to this measure,” wrote Kabambe on his Facebook page.
Almost a year has passed since the central bank devalued the kwacha in to give it its actual market value to the Dollar, in the hope of stabilizing the exchange rate and normalizing availability of forex.
However, there has been minimal impact, as forex is still in short supply.