By Cathy Maulidi
Former Minister of Finance Joseph Mwanamvekha has expressed dismay with a decision by the Reserve Bank of Malawi (RBM) to introduce Foreign Exchange Auctions.
In a notice to the general public, RBM has announced the introduction of Periodic Foreign Exchange Auctions that will see Authorized Dealer Banks (ADB) submitting bids to sell foreign exchange to the Central Bank at prices (exchange rate) freely determined by each participating Dealer Bank.
According to Dr William Banda, RBM Governor the decision has been reached at to discover, determine and maintain a market clearing price for the Malawi Kwacha against the United States Dollar and other major currencies.
But Mwanamvekha has described the decision as ‘very wrong’ saying it will lead to further massive devaluation or even loss of value for the Malawi Kwacha.
Mwanamvekha who is also a seasoned Economist specialized in Financial and Monetary Economics, has said the Policy regime was tried in the 1990s up to 1995 but it failed miserably.
“At that time, the auctions system of foreign exchange was meant to improve the country’s export competitiveness, provide efficient foreign exchange allocation to banks, maintain price stability, dampen speculative attacks on the Malawi Kwacha and restore investor and donor confidence. All these objectives were never achieved and, in fact, the opposite was achieved”
“After introducing this system in January 1994, the Malawi Kwacha devalued by over 300 percent by end of February, 1994. Inflation and interest rates increased to unmanageable levels and peoples disposable incomes declined heavily thereby making Malawians poorer than they were before,” said Mwanamvekha.
Mwanamvekha has therefore feared for massive and unprecedented devaluation, increase in inflation and interests rate which will in turn lead to increase in commodity prices, loss of value of people’s salaries and wages, massive poverty and suffering of Malawians if RBM proceeds with the decision.
