As part of the Exchange Control Guidelines, the Reserve Bank of Malawi (RBM) has revised and amended the conditions applicable for all foreign currency dominated accounts (FCDAs).
FCDA is account maintained in another currency other than the currency of the country in which the bank is located and the operation of such an account is subject to.
Features included no minimum opening amount and that interest is negotiable while benefits are that it allows client to hedge against exchange rate fluctuations; client is able to make foreign payments directly from account and that they can explore an alternative form of investments.
As the country is facing acute forex scarcity, that has led to serious shortage of fuel, RBM is finding more measures to control the forex trading.
According to the notice on October 10 by Deputy Governor, William Matambo, the decision is under Part XIV: Foreign Currency Dominated Accounts (FCDAs) in the Operational Manual for Cross Border Foreign Exchange Transactions issued to Authorised Dealer Bank (ADBs) 2015.
For non-residents’ FCDAs, the foreign exchange conversion/retention ratio shall not apply; remittances from these FCDAs shall not be subject to Exchange Control requirements; remittances may be credited through normal banking channels and other internationally acceptable payment instruments; and balances may be converted into Malawi Kwacha.
For residents, except for cash deposits on account of payment for exports, all other deposits shall be subject to the retention/conversion ratio by RBM from time to time.
Remittances from these FCDAs shall be subject to applicable exchange control requirements i.e documentation and that balances may be converted into Malawi Kwacha by way of sale to either the holding Authorised Dealer Bank (ADB) or any other ADB.
On conversation of the balances into Malawi Kwacha, the resident FCDA holders shall not attach any conditions to the conversion that have the effect of:
a) directing the ADB to sell or allocate the forex arising from the conversion to a specific party; or
b) generally remitting the role of the ADB as a financial intermediary.
Encashment of hard currencies may be allowed for purposes of travel allowances only.
RBM emphasises to all FCDAs that failure to adhere conditions by the ADBs shall attract appropriate sanctions
Last year, in moving to address foreign exchange liquidity challenges, Ministry of Finance & Economic Affairs introduced new guidelines to track export proceeds and guide FCDAs operation.
The publication of regulations in the Malawi Government Gazette notice 14 under the Exchange Control Act by former Minister of Finance & Economic Affairs, Sosten Gwengwe came against a background of existing guidelines that require exporters to sell 30% of their export proceeds to RBM through ADBs.
The notice dated May 27, 2022 indicated that the objective of the regulations “is to guide operations of FCDAs, increase the circulation of scarce foreign currency resources in the Malawi economy and ensure timely repatriation of all export proceeds to Malawi”.
Under the new regulations, a person who receives export proceeds or foreign currency shall, within two working days after receipt, be mandated to sell 30% to RBM through ADBs.
RBM Governor Wilson Banda was on record saying the move was temporary and hoped to return to 100% export proceeds retention once the country builds robust export capacity.
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