Zambia cracks down on black market as Kwacha slid...

Zambia cracks down on black market as Kwacha slides

Oscar J Jeke

Zambia's fight against a weakening Kwacha currency has escalated with the central bank introducing a law aimed at curbing illegal foreign exchange trading. This comes amidst a confluence of economic woes plaguing the nation, including a recent drought and a protracted debt restructuring process.

The Kwacha's depreciation to a record low against the US dollar has cast a shadow over the early optimism that followed President Hakainde Hichilema's inauguration. The new law, published in the Government Gazette on foreign exchange market guidelines for 2024, seeks to rein in the flourishing black market and stabilize currency volatility.

Under the new legal framework, only authorized banks and financial institutions can engage in foreign exchange transactions. Individuals caught illegally trading forex face fines, imprisonment, or both.

However, the law offers some flexibility. It introduces a concept of "negotiable amounts" for transactions exceeding authorized board rates. Businesses and individuals can take advantage of these negotiable rates, offering a potential avenue for legitimate high-volume forex transactions.

The Zambian move echoes similar actions taken by neighboring Zimbabwe. There, the government has been cracking down on illegal money changers blamed for hyperinflation. The introduction of the new ZiG currency in Zimbabwe is accompanied by a heightened focus on apprehending black-market forex dealers, aiming to safeguard the fledgling currency's stability.

The success of Zambia's new law hinges on effective enforcement. While it may curb black-market activity, concerns remain. Critics argue that driving forex trading underground could lead to a less transparent and potentially riskier environment for legitimate transactions.

Furthermore, the effectiveness of the "negotiable amounts" concept remains to be seen. Businesses requiring large forex transactions may find the official board rates uncompetitive, potentially pushing them towards the black market if the negotiable rates prove to be restrictive.

Zambia's battle against currency depreciation is far from over. The new law represents a bold step, but its long-term impact will depend on its execution and the government's ability to address the underlying economic issues plaguing the nation.