The FOREX auction system, introduced by the Reserve Bank of Zimbabwe in June this year to contain the black market and stabilize the economy, has been a major failure and will not achieve targeted results, says a former minister.
The Forex auction, which replaced the interbank market’s exchange rate system, has taken place every Tuesday with companies bidding on foreign exchange and at the end of the day setting weekly official rates.
However, Tapiwa Mashakada, who served as Minister of Economic Planning and Investment Promotion in the short-term government of national unity, told News Day yesterday that the scheme would remain ineffective in dealing with the black market interest rates that have pushed basic commodity prices to insurmountable levels for the majority. poor citizens.
From the outset, one must ask the following questions: Who drove parallel market interest rates? Why did the interbank market fail? Is the auction system sustainable? The largest players now participating in the auction system are the same players who yesterday were allegedly sourcing forex from the black market to finance imports of commodities and other foreign payments, ”he said.
This had transformed the parallel market into an untamed jungle with no rules, leading to ongoing parallel market interest rates, all because there was not enough forex to allocate to the market through the forces of demand and supply. Similarly, the interbank market collapsed because demand exceeded supply at the then prevailing exchange rates. In addition, forex buyers used arbitrage to read some of the forex on the black market. “
Mashakada added that the development saw high premiums between the official and parallel market interest rates.
With the introduction of the auction system, the official price increased from US $ 1: $ 57 to US $ 1: $ 83 per share. August 23, 2020. In my opinion, it is just the official exchange rate that has captured the parallel market interest rate. The prize still exists. For example, on August 23, the parallel market rate was US $ 1: $ 120 compared to the official price of US $ 1: $ 83, which means that the auction price is a moving target. It will never catch up or be on par with the parallel market for the following reasons: Importers supplement what they get at the parallel market auction to meet their full import requirements, and diaspora transfers are around $ 150 million per year. month. This is money that gets directly into people’s pockets. This money is being liquidated in the parallel market, ”he said.
The opposition member of the MDC Alliance also pointed out that partial payments to gold producers and tobacco users in the black market with civil servant bonuses as well as those covered by embassy and non-governmental staff receiving their salaries in forex will also be relieved in parallel market .ashakada said the only solution to the crisis was for the government to shut down the Zimbabwe dollar.
The market has dollarized. The only way to kill the black market is to dollarize and close down the RTGS / bond card in full, which will not happen due to the pressure from the cost of hiring civil servants. In this case, there is a real danger that the parallel market rate will pull up the auction rate until the price detection mechanism begins to burn inflationary pressures. The auction system has temporarily managed to slow down the changes in the price level, but that does not mean that the current prices are sustainable to the current income levels, ”he said.
“The auction system is deadly deficient because it is concerned with the demand side of forex and not its supply. The elephants in the living room are: lack of forex supply response and a currency that is worthless. Unless these two damages are addressed, auction system will remain a price discovery. “Mirage. Moncoin is a surrogate currency. In December 2020, I risk predicting that the auction price will violate the US $ 1: $ 100 mark. I hope I will be proven wrong.”