Surveillance of forex bureaux crucial
I am a strong advocate of a flexible exchange rate market system. Nonetheless, the foreign currency market must be transparent, and all entities that are in the business of selling and buying foreign currency must keep records and data that are verifiable. The flow and outflow of foreign currency impact the effectiveness of monetary policy in the country, so having reliable information is important. Moreover, without a transparent system, bureaux de change could become conduits for money laundering.
Requiring that bureaux de change have proper licenses, ask for identification, and provide a legitimate receipt, are the norms for operating a legitimate currency exchange business. I have travelled to many countries, and only in Tanzania have I been able to exchange currency without having to show any identification. In many countries, even in the most market-oriented economies, the details of your ID are recorded before the transaction involving foreign currency is made.
There was a time in Tanzania when some bureaux de change would not offer a receipt even if you asked for it. I remember back in 2013 when I went to a bureau de change in Arusha to exchange US dollars for shillings. After counting my money, I asked for a receipt. The cashier told me to go back the next day for it. I asked why. She said they were out of receipts. I asked how they could be open if they were out of receipts. She insisted that I should come back tomorrow. I asked what proof I would have for the transaction. She tore out a piece of paper and wrote the amount of dollars and shillings, stamped it, and gave it to me. She assumed that I was sent by someone to exchange currency and that all I needed was proof for “my boss” about the exchange rate. I asked her to put the date on it, but she said I should do it myself. While all this was taking place, people behind me were getting annoyed, apparently, with me. One accused me of pretending I didn’t know how the country operated – with no official recording of transactions.
However, the recent “raid” of bureaux de change by the BoT suggests that unofficial transactions may still be performed by unscrupulous business people. (By the way, I am of the opinion that any such raids should not involve the military personnel.)
Another feature of the Tanzanian economy that calls for the BoT’s careful consideration is the creeping dollarisation of the economy. The more dollarised the economy becomes, the less influence the BoT has on the value of the shilling. A market system does not imply a hands-off approach. Even Switzerland, a country renowned for its “don’t ask, don’t tell” policy about money deposited in their banks, sets certain boundaries. For example, if visitors to Switzerland want to pay for their hotel accommodation with local currency (Swiss francs), they would be asked to produce proof of having exchanged currency.
In its efforts to increase transparency in the foreign exchange market, the BoT should not be overzealous and set conditions which would make it very difficult for one to acquire a license to operate a bureau de change. Bureaus de change provide a service that should be readily available on a competitive basis. The last thing the country needs is the proliferation of the parallel market for foreign currency, reminiscent of the 1970s and 1980s when Tanzania had a fixed exchange rate system.
There is no indication to suggest that the BoT is contemplating a return to exchange rate ceilings. A fixed exchange rate system would be a grave mistake. We are aware of the devastating economic impact of exchange rate ceilings in the 1970s and 1980s in Tanzania. While this is an extreme example, in the early 2000s, Zimbabwe resorted to a fixed exchange rate system and ended up with an inconceivable level of hyperinflation – 230 million per cent – in 2008. Venezuela has also brought its economy to ruins with an unsustainable fixed exchange rate system.
Tanzania must continue with its flexible exchange rate system that allows legitimate and rules-abiding bureaux de change to operate. Legitimate businesses should not be intimidated by surveillance.
Richard Mshomba is Professor of Economics at La Salle University, Philadelphia, PA 19141, US
