Change: between reality and regulations, the big gap
Increasingly significant difference between exchange rates between the formal and informal market, proliferation of unlicensed stockbrokers, credit card billing, etc. The governor of the BRH, Jean Baden Dubois, answered questions from the Le Nouvelliste newspaper.
Posted on 2022-04-13 | lenouvelliste.com
Le Nouvelliste 1- A beneficiary received a transfer of 100 dollars from abroad. It was in gourdes that we paid. Why ?
Jean Baden Dubois R- According to circular 114-2, international transfers must be paid in gourdes at the market reference rate published by the BRH if the beneficiaries receive them at any point of service (branch, agency, transfer office, kiosk) on the national territory or from a payment instrument (payment card for example). On the other hand, if the transfers are made to a dollar account of a deposit-taking financial institution, the latter is required to pay them to the beneficiaries in dollars.
This circular was established with a view to improving transparency and governance in the settlement of international transfers and to protect the financial system from money laundering and terrorist financing. It also aimed to mitigate the problem of scarcity of cash in dollars and to protect transfer beneficiaries from the abuses of certain transfer houses or sub-agents.
Prior to the implementation of Circular 114-2, transfer recipients had the choice of receiving their money in US dollars or gourdes at a rate set by transfer houses or their representatives in certain remote regions. The practice of multiple rates for payment in gourdes had been reported by several beneficiaries who felt wronged by some transfer houses and some sub-agents. To correct this distortion, the central bank had decided to adopt this measure which was to promote uniform payment by requiring that it be made at the market reference rate.
It should be noted that after 18 months of application of this circular, the BRH is in the process of evaluating it to address the various difficulties encountered in its implementation and the strategies adopted by different actors. The board of directors of the BRH has already started consultations with stakeholders for a revision of the said circular.
2- The payment rate for a transfer is 106 gourdes. To pay the monthly payment for an internet subscription, 30 US of the amount of his transfer of 100 US dollars was refused to a beneficiary. He had to pay in gourdes at a rate of 119 gourdes for his internet subscription. Isn’t that an anomaly?
Jean Baden Dubois-R- The fundamental anomaly is already in your question. Indeed, your subscription should have been in gourdes and not in dollars. The rate used by your supplier should preferably be an integral part of its cost price in gourdes. Allowing the merchant the ease of setting his rate in a very often non-competitive market is not the norm, and very often gives him an incentive to give himself an additional profit margin by choosing the highest possible rate. I admit that this requires regulation on the display of prices in gourdes and the authority of the State to enforce it, which is far from depending only on the BRH.
In addition, the transfer house was not going to give you dollars, since it is required to give you the transfer in gourdes as required by circular 114-2. However, you have the option of having the dollars if originally the sender mentioned that this transfer must be deposited in dollars in your bank account.
Regarding the acquisition of dollars that you made at 119 gourdes, I will tell you that if the average purchase rate of the selling entity is close to the reference rate of 106 gourdes, it means that you have bought the 30 dollars at a high price. There, there is an anomaly and only the trader can know if there was undue profit or if he had bought the dollar at a high price.
We are currently working on aspects related to the discrepancies between formal and informal rates. I point out to you that this gap had always existed in the past, it is more important lately because the conditions are more difficult, the rate of growth of the main component of the supply of dollars (private transfers) has slowed over the first five months of the financial year and the expansion of the demand for dollars for both transaction and precautionary purposes is strengthening in a context of increasing uncertainties
3- The owner of the market plays the role of stockbroker to have dollars to be able to import?
Jean Baden Dubois- R- The institutions required to operate on the foreign exchange market are: commercial banks, savings and housing banks, stockbrokers approved by the BRH and investment promotion companies. According to the regulations in force, the transfer houses must not carry out exchange transactions, except in the case of an expedition of transfers.
However, with the rise in insecurity, the deterioration of the socio-economic situation, many people feel safer to go and sell their dollars in a supermarket or at another local agent offering this service. The BRH assumes that this is a way for these players to obtain dollars for import needs. All these anomalies will be addressed by the new law on the foreign exchange market
4- What should be done and by whom?
A- The Bank of the Republic of Haiti (BRH), as part of its mission, is responsible for ensuring the proper organization of the market and guaranteeing the smooth running of exchange transactions in accordance with rules and practices. Thus, it is called upon to take all necessary and appropriate measures to correct market distortions. With this in mind, the central bank plans to formalize the foreign exchange market by implementing a set of elements ranging from the modification of the law, to the structure, operation and development of the market.
The new law or decree-law does not authorize any stockbroker (natural person) having an arm’s length relationship with a foreign exchange office to intervene on the foreign exchange market. Approval is given to exchange offices (legal person). Compliance requirements have become too difficult for a natural person. These requirements relate to issues relating to the fight against money laundering and the financing of terrorism, internal control, reliable and accurate financial information, governance, which are quite heavy for a natural person. The structure of a company will inject dynamism into the sector. Is this why the new law will offer exchange offices instead of exchange agents.
Most certainly, other state institutions will have their role to play in the new organization of this market.
5- What does the volume of transfers and transfers to small holders represent?
A- Analysis of recent data shows that 75% of the total volume of transfers received falls within the range of 50 to 499.99 dollars. Transfers received of less than $50 represent 15% of the total volume. The remaining 10% is split between transfers in the range of 500 and 999.99 dollars (5.10%) and 1000 dollars and more (4.90%).
6- The difference between the average rate of acquisition and the rate in the informal sector is in some cases 8, 10 gourdes?
A- Firstly, the informal sector is not subject to any regulation, the accumulation made on purchase can be retained longer and put back on the market according to the low seasonal cycle phases of the currency supply and thus earn very large short-term gains.
Second, the security environment, the socio-political situation contribute to the strengthening of demand both for the purposes of storing value and for transactions. As the local foreign exchange market is not too deep and has very little supply, informal operators take advantage of this weak infrastructure to achieve very high premiums both on purchase and sale. On the other hand, in cases of an increase in the seasonal cycle, that is to say at any significant increase in supply, there is a reduction in the margins earned by informal operators in comparison with the prices practiced in the formal sector and the differential is less.
Similarly, the economic agent who seeks to acquire dollars for various purposes and having a high rate of impatience is also ready to accept prices higher than those practiced in the formal segment of the market. In practice, importers or traders tend to internalize a rate that is often higher than those on the various market segments, which, in addition to enabling him to cover his replacement cost, often gives him an additional exchange gain.
7- How do you view the application of different rates to bill debtors who hold a credit card?
A- The invoicing of operations carried out both in Haiti and abroad by card issued in Haiti is done exclusively in gourdes. The conversion rate for international transactions made through Visa or Mastercard payment cards issued in Haiti is the Average Acquisition Rate (AMR). The Average Acquisition Rate is the average rate at which customers acquire dollars from the banking system, in other words, it is the average sale rate of the banking system.
Credit card issuing banks and credit card companies are required to provide in the statements of account the exchange rate actually charged for each transaction. This rate must be equal to the sum of the following elements:
– Conversion rate applied by Visa or Mastercard;
– Fees on international transactions applied by banks or credit card companies;
– Fees billed directly to the cardholder by Mastercard or Visa, where applicable, on the amount of transactions carried out abroad.
International transaction fees applied by any credit card issuing bank or credit card company cannot exceed 2.75%.
Circular 101-4, which came into force on September 17, 2021, specifies all the standards relating to transactions carried out using payment cards. (https://www.brh.ht/wp-content/uploads/circulaire-101-4-portant-sur-les-cartes-de-credit.pdf) https :// www . brh . ht / wp – content / uploads / circular – 101 – 4 – about – credit – cards . _ _ _ _ _ _ pdf )
8- In these times of inflation and economic difficulties, shouldn’t society be more vigilant?
A- Of course, society must be very vigilant. On the one hand we have imported inflation: the world prices of certain basic products were already increasing even before the war in Ukraine; now they are much more so, which will make imports more expensive over the rest of the financial year and worsen the current account balance, especially since we have observed a slowdown in the growth rate of private transfers so far, as mentioned previously. In addition, problems in the supply chains, stemming from the paralysis of four departments of the country, are increasing prices in the economy.
Interview by Roberson Alphonse