Tunisia introduces private currency exchange to tackle informal market

In southern Tunisia there is a parallel central bank that no one wants to openly talk about.
Sunday 14/04/2019
A view of a private currency exchange bureau in Tunis. (Khaoula ben Amara)
Not enough. A view of a private currency exchange bureau in Tunis. (Khaoula ben Amara)

TUNIS - Experts in Tunisia said money exchange offices in the country can do nothing to curtail currency trading on the black market. Tunisian authorities, however, are assessing the gap between the official rate of exchange of the Tunisian dinar and its price in the parallel market, a process that is expected to take a long time.

A former senior employee at the Tunisian Central Bank, who wished to remain anonymous, said: “Monetary authorities will not be able to solve the problem, either because they are lazy or out of fear of starting a confrontation with the lobbies that control the parallel market.”

He said that in southern Tunisia there is a parallel central bank that no one wants to openly talk about. Money traders there deal with a volume of about three times the reserves of the Central Bank, which stand at about $5 billion.

The establishment of private currency exchange bureaus for the first time is a step towards swallowing the bitter medicine of the International Monetary Fund, which has long insisted on liberalisation of currency exchange, which the Tunisian government and the Central Bank have refused to do.

The Tunisian authorities’ move to reform the country’s financial system by opening money exchange offices operating under the law came late considering the prevailing economic situation. Tunis Afrique Presse, Tunisia’s official news agency, quoted former Finance Minister Houcine Dimassi as saying: “The new measure of opening currency exchange offices cannot by itself stop the bleeding caused by currency exchange on the black market.”

Dimassi stressed that it is impossible to estimate the size of the currency exchange black market. The Central Bank has said the volume of currency traded outside the official channels does not exceed 3 billion dinars (about $1 billion), a figure that Dimassi said he doubted. The Central Bank recently announced that it had granted seven licences for practising “trading foreign currency by hand.”

Last year, the Tunisian government authorised the creation of currency exchange offices “for the purpose of channelling illicit currency transfers towards official channels and of strengthening the national effort to combat money laundering and financing terrorism.”

The government decree specified requirements for opening an exchange office. The most prominent of these is that the office should be managed by a financial specialist. The minimum bank guarantee for the new business was set at 50,000 dinars ($16,150), which must be deposited with the Central Bank through any financial institution operating legally in the country.

It is feared that the value of the dinar will fall to record levels against foreign currencies and there have been warnings of serious repercussions should that happen. The situation reflects the serious overall financial imbalance and paralysis of most engines of economic growth.

Tunisia’s official monetary policy has been steering away from devaluing the dinar. The government has repeatedly denied its intention to float the currency and the issue remains controversial.

Financial expert Anis Kassimi said that, given the pressure placed on it, Tunisia has no choice but to reform its financial system so it can contain its economic crisis.

He said that, even though the move to allow private currency exchange offices to open came a little late, it would allow authorities to have an idea about the volume of currency traded on the black market and thus develop strategies to prevent further degradation of the value of the dinar.

Ahmed El Karam, president of the Association of Tunisian Banks and Financial Institutions, said earlier that “the Ministry of Finance and the Central Bank will supervise the process and these (currency trading) offices will be directly linked to the banks, which will directly receive the currency surpluses of these offices.”

Tunisian economic observers blame the troika government, which was led by the Ennahda Movement party, for the country’s economic woes. The troika allowed the country to plunge into economic anarchy that brought about economic and social crises, which led to an unprecedented devaluation of the dinar.

Unions and international financial organisations have been demanding for years that Tunisia establish a financial system to contain the unbridled liquidity in the parallel market because that situation often is the first link in financing terrorism.

Government officials and banking and financial specialists said one of the main reasons for the spread of money laundering in Tunisia is the political, economic and administrative chaos that followed the overthrow of Zine el-Abidine Ben Ali in January 2011.

Tunisia’s financial community has become increasingly worried about the inability of the country’s monetary authorities to protect the value of the dinar. In a parliamentary hearing in February, Tunisian Central Bank Governor Marouane El Abassi said: “It’s not easy to defend the dinar in light of the decline in foreign currency reserves.”

After the 2008 global financial crisis, Tunisia faced a series of shocks until the significant collapse of its economic growth rate in 2011. Tunisia’s economy picked up in 2014. The Tunisian government said it expects the economy to grow by about 3% this year.