Former Finance Minister Honourable Joseph Mwanamveka has faulted the Reserve Bank of Malawi on the introduction of foreign exchange auctions,
Mwanamveka said the press statement made by the Reserve Bank of Malawi on the introduction of foreign exchange auctions is a wrong decision as it will lead to further massive devaluation or loss of value for the Malawi Kwacha.
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 but It failed miserably and was later ambandoned.
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.
I am therefore dismayed or astounded that the Reserve Bank of Malawi wants to revert to such failed foreign exchange policy regime. What a surprise!
In fact there are many studies that were done by Reserve Bank of Malawi and one of them was entitled “ The efficacy of foreign exchange intervention in Malawi”. This can be accessed on the internet. The studies clearly demonstrated that auction system as a foreign exchange policy can’t work in Malawi. The same has not worked in almost all developing countries including those in Africa.
It can therefore be concluded that if the Reserve Bank maintains to pursue this foreign exchange policy regime again, Malawians should expect massive and unprecedented devaluation or loss of value of the Malawi Kwacha, unprecedented increase in inflation and interest rates which In turn will lead to unprecedented increase in commodity prices, loss of value of Peoples’s salaries and wages, massive poverty and suffering of Malawians.You do it at your own peril!!