Businesses and individuals refusing to take South African banknotes as payment are breaking the law, the Central Bank of Lesotho (CBL) has said.
The rand is a legal tender in the Common Monetary Area (CMA), which includes, Eswatini, Lesotho, Namibia, and South Africa.
On Wednesday last week, the CBL cautioned the public about the prevalence of dye-stained/bleached South African banknotes.
It said the dye-stained/bleached banknotes were believed to be resulting from a spate of riots that culminated in the bombing of many ATMs in KwaZulu-Natal, South Africa (RSA).
It also cautioned that while the bleached ink is visible under ultraviolet light (UV) and other sophisticated cash processing equipment, it cannot be easily detected through the naked eye.
Consequently, it said, some banks, retailers, and members of the public had suffered financial losses because of bleached banknotes.
“The public is, therefore, warned against accepting and using dye-stained/bleached Rand banknotes in circulation as a means of payment because this security ink renders them unusable and worthless.
“The public is notified that the bleached Rand banknotes will not be exchanged for value at the banks and Central Bank of Lesotho,” it said.
To avoid suffering financial losses, some businesses and individuals who could not afford to get ultraviolet light, started to refuse to accept any South African banknotes.
This, according to Fusi Morokole, director of CBL’s department of operations, is illegal.
“The rand is a legal tender in Lesotho, businesses or people who are refusing to accept it as payment are breaking the law,” Morokole said.
“CBL did not say people should refuse to accept South African banknotes. It only said they should be vigilant and not accept or use bleached banknotes as a means of payment. Not that they should not accept any rands,” he added.
One of the CBL’s functions is to issue, manage and redeem the currency of Lesotho;
Section 27 of the Central Bank of Lesotho Act of 2000 provides for the legal tender status of the banknotes and coins issued by CBL.
“Notes issued by the Bank shall be a legal tender in Lesotho at the face value for the payment of any amount,” the Act reads.
On April 1, 1986, the Trilateral Monetary Agreement among the governments of Lesotho, Eswatini, and South Africa came into force, establishing the CMA.
It replaced the Rand Monetary Area (RMA) established in December 1974.
Under the terms of the CMA agreement, Lesotho and Eswatini would also have the right to issue their own national currencies, Loti and Lilangeni, respectively.
Namibia, which became independent in 1990, joined the CMA in 1992 and issued its own national currency, the Namibian dollar, in the following year.
The national currencies of Lesotho, Namibia, and Eswatini are pegged at par with the rand. Under the current parity arrangements, loti, lilangeni, and Namibian dollar, and the rand are perfect substitutes. There is no transaction cost in conversion
The local currencies issued by the three members are legal tender only in their own countries.
The South African rand, however, is legal tender throughout the CMA.
Morokole told this publication on Wednesday that retailers should not refuse to accept South African banknotes because apart from that it is against the law to do, Lesotho gets compensated for circulating rands.
Since the rand is legal tender in all CMA countries but the currencies of the three small CMA members are not legal tender in South Africa, the three members are compensated by South Africa for forgone seigniorage – profit made by a government by issuing its own currency.
“It is, therefore, important that members of the public and businesses should continue using rands because by so doing, we generate revenue for our government, revenue that could be used to build roads and clinics in our villages,” Morokole said.
The compensation is based on a formula equal to the product of two-thirds of the annual yield on the most recently issued long-term South African government stock and the volume of rand estimated to be in circulation in the member country concerned.
CBL has called on the public to verify suspicious South African banknotes in their possession at the nearest banks.
If the notes are found to be bleached, the banks take them and then hand them over to CBL.
Morokole said CBL will in turn hand over the bleached notes to the South African Reserve Bank (SARB).
“These banknotes are considered the proceeds of crime and have no value and cannot be exchanged for monetary value,” he said.
Section 29 of the CBL act states that no person shall as or right, be entitled to recover from the CBL, the value lost, stolen, mutilated, or imperfect notes or coins except under provisions, if any, of any enactment or rule or the bank’s order to the contrary.