Papua New Guinea’s central bank has moved to stop offshore foreign banks, which don’t operate in PNG, trading in the Kina.
From this month, people and companies wanting to trade in Kina and foreign currencies will only be able to use one of six authorised dealers.
Since July last year, after the Bank intervened to peg the Kina against the US dollar and define a tighter trading range, individuals and companies have been opening offshore accounts, keeping income offshore, rather than repatriating it.
Only licensed banks will be able to accept deposits, provide loans and convert currency (Kina and foreign currency), the Governor of the BPNG, Loi Bakani, has announced.
‘It has become evident that foreign banks are doing banking business in PNG through their Kina accounts held with domestic banks, which are also called Vostro accounts.
‘Kina remittances for the receipt or payment of foreign currency must be done through Authorised Foreign Exchange Dealers. Direct Kina deposits by PNG residents into Vostro accounts of foreign banks are not permitted,’ he said.
‘There are a number of the larger foreign banks, which do not have any representation in PNG, trading in the Kina,’ Westpac’s Head of Financial Markets, Martin Green, told Business Advantage PNG.
‘The pool (of foreign currency) has been diminishing because of that and this measure will help by bringing much-needed hard currency back into our market, where it should have been in the first place,’ David Kelso, Managing Director of MoniPlus, one of the six authorised dealers, told Business Advantage PNG.
‘So for our market, it is a good intervention.
‘On any day there can be up to K600 million of importers demands that aren’t being satisfied so what this is going to do is to narrow that gap and give us more hard currency to satisfy those importers’ demands.’
Westpac’s Martin Green agrees, adding it will mean a ‘fairer way of distributing the Kina’.
Kelso says that people have kept their foreign exchange earnings offshore ‘out of necessity’.
‘If you’re a company that has had import requirements as well as export requirements, the forex margins have been excessive so it is quite advantageous for them to have a US currency account—they can offset other offshore expenses with those USD instead of converting to Kina then back to USD.
‘What the imbalance has done is to cause an illegal trade of our currency outside the country.’
Kelso says some mining companies are able, by law, to keep their money offshore in US dollar bank accounts.
‘So this is not going to close all US dollar bank accounts. What it’s going to do is to close the ones that haven’t been authorised through an act of parliament (for mines) or by specific Bank of PNG approval.’