Parallel markets can't be controlled via legislation, says Inaz

Former Finance Minister and economist Dr Ahmed Inaz has cautioned that systemic parallel foreign exchange markets cannot be controlled through legislation or restrictive policies, urging the government to adhere to economic principles when addressing currency market pressures.

His comments come amid proposed changes to foreign exchange legislation that would impose penalties on individuals and businesses that advertise, publish or disseminate information relating to foreign currency transactions conducted outside rates set by the Maldives Monetary Authority (MMA).

Under the proposed amendments, individuals could face fines ranging from MVR 25,000 to MVR 500,000 for promoting or sharing information about foreign exchange transactions conducted outside official rates.

For companies and registered businesses, proposed penalties range from MVR 100,000 to MVR 5 million.

Commenting on the measures in a post on X, Dr Inaz argued that markets operating on a systemic basis cannot be eliminated through legal restrictions alone.

“A market operating systemically within the economy cannot be stopped through legislation or authoritarian policies,” he wrote.

He added that such measures would not address the pressures currently affecting the foreign exchange market.

“Nor will it resolve the anxiety and distress currently present in that market,” Dr Inaz said.

In his post, he also called on President Dr Mohamed Muizzu not to act in a manner that conflicts with economic fundamentals.

The comments come as parliament considers amendments aimed at tightening regulation of foreign currency trading and increasing penalties for transactions conducted outside official exchange rate bands.

Economists have frequently argued that sustained differences between official and market exchange rates are driven by underlying supply and demand conditions, including foreign currency availability, liquidity and market confidence.

Dr Inaz's remarks add to a broader debate over the effectiveness of regulatory and enforcement measures in addressing foreign exchange shortages and parallel market activity.

The proposed amendments to the foreign exchange framework remain under parliamentary consideration.