The recent announcement by the central bank (Bank of Zambia) on the adjustment to foreign exchange limits may have appeared insignificant, but when one looks at the details and expected impact on the ground, you will note that its effect will be far reaching and has potential to deliver increased forex inflows into the Zambian formal banking system if well implemented.
The Bank of Zambia (BoZ) has exclusively told the Zambian Business Times – ZBT that the recent increase in the over-the- counter transaction limits will go a long way in enhancing structured trade through licensed financial service providers at Kasumbalesa border and other active border facilities.
The Central Bank recently adjusted upwards the daily limit for over-the-counter cash transactions for customers from the current US$1,000 to US$5,000 to allow customers to sell or buy forex over the counter up to a maximum limit of US$5,000.
The central bank also adjusted upwards the daily limit for over-the-counter cash transactions for commercial bank account holders from US$5,000 to US$10,000 to allow customers to sell or buy forex over the counter up to maximum of US$10, 000.
Analysts say that those that are familiar with the Kasumbalesa border trade know that its a net gainer for forex for Zambia as its a trade route for exports to the Democratic republic of Congo. This means that most of the forex that has been in the informal market will now be channeled into the formal financial system, which will boost Zambia’s US dollar holdings or reserves.
BoZ has told ZBT that the central Bank expects that this increase and also encourage more financial service providers to set up operations at the border. “Kasumbalesa border is the busiest crossing point for travelers and cargo between Zambia and the Democratic of Congo and that thousands of Congolese traders cross into Zambia on a daily basis to buy huge quantities of merchandise for resale in the DRC.
“Given the limited access to financial services, it is difficult to pay for their purchases using electronic means such as bank transfers and debit cards, traders cross into Zambia with either Congolese Franc cash or US Dollars cash to purchase merchandise,” Mwanza noted.
She said going forward, the Bank will continue to engage relevant authorities responsible for improving the physical and security infrastructure at Kasumbalesa as this will also incentivize Financial Services Providers – FSPs to open up their branches.
The Central Bank also allowed non-commercial bank account holders to sell or buy forex in the commercial bank up to a maximum limit of US$5, 000 is consistent with the limit set for BDCs. In arriving at the decisions above, BoZ held extensive consultations with various stakeholders including the association of BDCs.
The bank also undertook a regional and international comparative analysis of presently obtaining over the counter forex limits in different and came to a conclusion that the proposed changes are long overdue and appropriate to ensure smooth operations of over the counter forex transactions.
These limits were last revised 20 years ago and business dynamics have changed. The central bank further revised downwards the daily maximum limit that Bureau De Changes -BDC’s can source from banks to US$20,000 from the US$100, 000.
The rationale behind this move is that BDCs should now be able to source forex from their customers in light of the upward revision to US$5, 000 on OTC limits for BDCs in addition to the US$20, 000 they can source from commercial banks. These decisions will ensure smooth and efficient operations and provide convenience to customers in sourcing and selling of forex, the Central Bank Governor Christopher Mvunga has stated.
