Letter to the Editor Perspective on happenings on the foreign exchange fronts |15 April 2021
Please allow me some space in your newspaper to shed some light on the happenings on the foreign exchange fronts.
For the past few days, people have been speculating on social media that banks and money changers should be punished without knowing the real reasons why Seychelles Rupees (SCR) is scarce/not available. I feel that people in our beautiful Seychelles need to know the real reasons why banks and money changers do not have SCR anymore to buy foreign exchange (FX) from local businesses and incoming tourists. CBS is not painting the full picture as there are quite a few reasons for this. At the same time, CBS is failing to admit that its recent move may have been a good one to replenish the ‘vault’ but a wrong one in this Covid-time.
In January 2021, many of you would remember that CBS’ first move for the year was to issue 3 types of bonds (3 yrs, 5 yrs and 7 yrs). Bonds are normally issued to mop up liquidity in a system and that is exactly what happened. People who were hoarding FX saw a good investment opportunity and exchanged huge amount hence the influx of FX on the market as explained by CBS. The SCR was used to invest in bonds and a few commercial banks took that avenue as well. Hence now, there is a surplus of foreign currency on the market and SCR is tied up in CBS.
The second factor leading to scarcity of SCR is the fact that speculation had it that CBS is going to intervene and fix a USD rate of 14 to the SCR. Speculation is a major factor in supply and demand of FX. People having FX ‘dumped’ them on the FX market and other people rich in SCR is holding on to their SCR to get the maximum FX value, hence leading to reduction in supply of SCR.
Thirdly, the circulation of SCR has reduced significantly. Many shops are still having stock as they had not been selling that well during Covid period hence nobody need new stock yet, the old stock needs to be sold to get money to buy FX for new stock so still no SCR entering the system. In addition, the cost of living has gone up, purchasing power has gone down for many and entertainment has been zero – bars, casino and clubs have been closed hence ‘leisure spent’ has been curbed. Ultimately reducing the circulation of SCR.
CBS’ most recent move to ‘unblock the situation’, as the Governor termed, was to buy FX from the bank on Monday. It was a good one as they have realised that SCR is scarce and they are the ones holding it in bonds. Some people would argue that the most sensible thing CBS should have done was buy from both banks and money changers as they are regulators for both, but they bought from banks ONLY. In turn banks are still not buying from everyone, let alone money changers and still getting away with this! So YES Governor, some people can still say that there are no SCR as the banks, even if relieved of USD 12.1m by CBS, are not holding their part of the bargain to buy from everyone!
The views expressed in this letter are those of the contributor and do not necessarily reflect the views of the Seychelles NATION newspaper.