By Nawa Mutumweno – Zambia’s Ministry of Finance has signed a Statutory Instrument No.33 of 2012) which prohibits the quoting, paying or demanding to be paid or receiving foreign currency as legal tender for goods, services or any other domestic transactions.
The SI was signed by the Minister of Finance, Alexander Chikwanda on May 7 and it became effective on May 18, 2012.
The objective of the Statutory Instrument No. 33 is to reinforce the use of the Kwacha (ZMK), which is Zambia’s legal tender, in domestic transactions in line with the practice in other countries.
‘’The Zambian economy experienced distortions from the mid-1990s following the liberalisation of the economy in general and the financial sector in particular. One of the distortions was in currency management, where there was excessive demand for foreign currency arising in part from the need to settle purely domestic transactions in foreign currency. A number of entities began to quote and demand to be paid in foreign currency for goods and services produced in Zambia. Payment in foreign currency for domestic transactions poses several challenges for economic management, including the effectiveness of monetary policy implementation,’’ a statement issued by the Bank of Zambia (BoZ) Public Relations Unit reads in part.
In the recent past, the country has experienced relative macroeconomic stability reflected in positive economic growth, falling inflation, relatively stable exchange rate and downward trend in lending rates.
Among the provisions of the SI are the following: ‘’A person shall not quote, pay or demand to be paid or receive foreign currency as legal tender for goods, services or any other domestic transactions. A person who contravenes these Regulations commits an offence and is liable, upon conviction, to a fine not exceeding one hundred thousand penalty units or imprisonment for a period not exceeding ten years, or both.’’
For organisations, it declares: ‘’If a body corporate or an unincorporated body is convicted of an offence under these Regulations, every person who – is a director of, or is otherwise concerned with management of, that body corporate or unincorporated body or knowingly authorised or permitted the act or omission constituting the offence; shall be deemed to have committed the same offence unless the director or like officer of the body corporate or unincorporated body proves to the satisfaction of the court that the act constituting the offence was done without the knowledge, consent or connivance of that director or like officers.’’
Domestic transaction, under the SI, has been identified as any transaction within the country that involves a payment of a sum of money in or towards the satisfaction of a debt, or for the credit of, a person resident in the Republic of Zambia.
The implications of the SI are as follows:-
- Existing foreign currency denominated contracts: existing foreign currency denominated contacts, covering domestic transactions should immediately be converted into Kwacha-denominated contracts at the prevailing commercial bank spot selling rate as at May 18, 2012.
- International transactions: where one party to the transaction is outside the country but where goods and services are produced in Zambia, quotations for prices will be in Kwacha. Payments for such international transactions may be made in foreign currency and the financial system will facilitate the transfer and conversion of such foreign currency receipts into Kwacha
- Foreign currency loans, deposits and bonds: for the purpose of this Regulation, domestic transactions shall not include:- foreign currency loans and advances by commercial banks registered in Zambia; foreign currency deposits issued by commercial banks registered in Zambia; foreign currency denominated bonds issued in the capital market; and interest, fees, commissions, and like charges incidental to the above.
- Further, commercial banks may continue to issue financial instruments such as bank drafts and cheques. However, the use of these financial instruments will be limited to international transactions only.
Airlines and travel agencies operating in Zambia will be required to quote, sell and receive payment for tickets and other services in Kwacha; authorised foreign currency dealers (commercial banks and bureaux de change) will continue to undertake foreign exchange transactions as per existing foreign exchange regulations; and inter-company transactions (domestic transactions amongst companies), including related companies will be undertaken in Kwacha.
Hotels, car hire firms and tour operators will be required to quote the prices of their goods and services in Kwacha. However, hotels will continue to buy limited amounts of foreign currency from their residents while credit and debit cards will continue to be used for settlement of bills for goods and services supplied by hotels, car hire firms and tour operators. Point of sale machines at hotels, car hire firms and tour operators where credit cards and/or debit cards are used will have to be reset to collect credits in Zambian Kwacha.
Advertisements on global websites for firms with a global outreach may be shown in foreign currency for purposes of assisting customers understand the pricing structure and compare with similar services. However, quotations for the products or services will be in Kwacha and a guiding exchange rate should be given for such quotations.
Government maintains that the issuance of this SI does not amount to a re-introduction of foreign exchange controls.
‘’The foreign exchange regime will remain liberal and trading of foreign currency will continue to be undertaken through commercial banks and bureau de change. The measures introduced are aimed at reinforcing the use of the Kwacha as a legal tender in the economy and encourage financial innovation in the financial system, such as development of hedging instruments to manage exchange rate risk.’’