How new law on forex trading affects transactions in foreign currencies

How new law on forex trading affects transactions in foreign currencies
How new law on forex trading affects transactions in foreign currencies

Africa-Press – Rwanda. Investors (mainly foreign) are usually keen to know whether, if they set up their businesses in Rwanda, they will freely open local and/or overseas bank accounts. Whether they can transact in foreign currency, can contract loans in foreign currencies from non-resident lenders to finance their activities, and most importantly, whether they would face any exchange controls if they decided to expatriate the proceeds of their investments such as current income relating to the locally made investments (dividends) or surplus from liquidation of the capital invested in their Rwandan entities.

All the above issues are dealt with under regulation n° 42/2022 of 13/04/2022, which liberalises capital account operations and establishes rules relating to the management of foreign exchange transactions in Rwanda (the “New Forex Regulation”).

This regulation was gazetted on April 18, 2022 and repealed the regulation n° 05/2013 of 21/10/2013 governing foreign exchange operations (as modified to date, the “Repealed Forex Regulation”).

Although the new forex regulation brought in a few more salient changes, I will focus on the prohibition of pricing and selling goods or services in foreign currency by persons other than institutions licensed or otherwise authorised by the central bank to deal in foreign exchange such as banks, deposit taking microfinance institutions, forex bureau among other.

This topic is certainly of great interest to the wider public (not necessarily investors) as the latter is largely involved in the buying and selling of goods and services on a daily basis.

Under article 4 of the Repealed Forex Regulation, only non-licensed persons (such as hotels, casinos, duty free shops, travel or tourism companies duly registered) that, in their businesses, regularly dealt with non-residents were authorized to receive foreign currency in their transactions.

This provision was in line with article 37 of law n°48/2017 of 23/09/2017 governing the National Bank of Rwanda (the “NBR Act”) which provides that “[b]anknotes and coins issued by NBR are sole legal tender on the territory of the Republic of Rwanda”. This article further states that “[a]ll monetary obligations or transactions entered into or made in the Republic of Rwanda are considered to be expressed and settled in Rwandan franc unless otherwise provided for by laws or it is lawfully agreed upon between the parties.”

A harmonized reading of the foregoing provisions suggests that, prior to the publication of the New Forex Regulation, all monetary transactions entered into or made in Rwanda (by non-licensed persons) had to be priced and executed in Rwandan franc unless the payee regularly dealt with non-residents.

Two things however remained indistinct in article 4 of the Repealed Forex Regulator: (i) what ‘regularly dealing with non-residents’ entailed as to the number of non-residents and how often one had to deal with them in order to qualify for the exception under the aforesaid article; and (ii) whether, in the event a person regularly dealt with non-residents, he/she could legally receive foreign currency from Rwandan residents on the basis that he/she regularly deals with non-residents in discrete transactions.

It is also worth highlighting that neither the central bank Act nor the repealed forex regulation (which generally proscribe non-licensed persons from transacting in foreign currency) provided for penalties for pricing and selling of goods and services in foreign currency without abiding by the relevant requirements set out under the same instruments. This lack of specific repercussions rendered the prohibition futile and it could be comfortably overlooked.

The new regulation brought a bit of clarity on the above-discussed issues.

Article 32 predominantly stipulates that “[p]ricing goods and services in foreign currencies is prohibited and punishable by the law and unless as provided in this regulation.” Article 4 of the same regulation also clarifies that “…non-licensed persons shall apply to the Central Bank for authorization to transact in foreign currency depending on the need and types of the business.”

The regulation further provides that foreign currency received by authorised non-licensed persons shall be either credited on a foreign currency accounts, sold to a licensed intermediary or used to settle external obligations through authorized financial institutions.

The above provisions, read in tandem with article 37 of the NBR Act, suggest that no one is allowed to transact in foreign currency in Rwanda unless he/she is a licensed intermediary or is otherwise so authorized by the central bank.

This denotes that it is now extraneous to determine whether a person receiving foreign currency deals with non-resident regularly, although the central bank will likely take this factor into account before granting the said authorization.

Further, unlike the old regulation, the new law provides for penalties for pricing or selling goods or services in foreign currency without the central bank’s authorization.

In terms of article 34 (2) of the new law, any person who sells or pricing goods or services in foreign currency contrary to the provision of this regulation shall be punishable by the seizure and confiscation of the amount involved in that transaction, and the seized amount shall be credited on the public treasury account.

Much as the law elucidates the requisite for an non-licensed person to transact in foreign currency as well as the corollaries for failure to observe the same, it does not specify what the central bank will consider in granting or refusing to grant the authorisation, the documents or information to be submitted when applying for the authorization, and the timelines in which the central bank has to provide its response on the application.

It goes without saying that all the aforesaid are very pertinent to investors particularly for planning and transparency purposes.

For this reason, a directive addressing the alluded-to issues should be put in place to have that lacuna bridged up.

The new forex regulation was quite timely as it at least makes it clear that non-licensed persons (without any exceptions) are not allowed to transact in foreign currency without authorization from the central bank to that effect.

The same clarity is also on the ramifications for not complying with such a prerequisite.

The enforcement and adequacy of penalties provided for by the new forex regulation with regard to deterring unauthorised foreign exchange transactions is beyond the scope of this article.


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