THE new Reserve Bank of Zimbabwe exchange rate system has hit serious operational difficulties before it has even started, with bankers resolving last week to shelve the plan before imple
In his monetary policy statement a last week, central bank governor Gideon Gono introduced the Tradable Foreign Currency Balances System (TFCBS) to replace the controlled forex auction with a liberalised scheme in which market forces determine rates.
But a committee of bank treasury experts last Friday, at a special meeting to deal with the exchange rate crisis, exposed grey areas in Gono’s plan. They said there simply wasn’t enough liquidity on the market to buy foreign currency at the new high rates.
This week banks were trading in foreign currency at rates of between $60 000 and $103 000 to the United States dollar. Banks that had cut their foreign currency departments or had phased them out completely, were caught unawares by the new policy. They were this week either moving personnel to reconstitute the department or were recruiting new staff.
Bankers and exporters yesterday met to discuss Gono’s forex initiative. They are expected to meet again next week.
The TFCBS was introduced by the central bank last week on the recommendations of the Confederation of Zimbabwe Industries and the Zimbabwe National Chamber of Commerce.
The two industry bodies initially suggested that the central bank introduce a free auction system instead of having banks determining the rates, but this was not taken on board as the RBZ said it was no longer an active player on the market.
The committee of treasury experts on Friday came up with what they termed “key findings”. It warned that liquidity problems would be a major constraint in the liberalised foreign currency market.
“At present the market has no liquidity hence the interbank market will not be viable,” minutes of the committee read. “No one will offload to the interbank market. We should shelve introducing interbank trading until liquidity improves. We assume no major fixed inflows into the country outside exports/free funds.”
As the forex crisis persists, Finance minister Herbert Murerwa is today expected to travel to South Africa for further negotiations for a loan. But Murerwa said he was not going anywhere because he was farming.
Friday’s meeting was attended by treasury officials from all major banks and was chaired by Zibusisiwe Nkomo, a head of treasury with a local bank.
The bankers considered three options to kick-start the interbank system and agreed to a seemingly elaborate plan that involves importers and exporters.
Under the plan, banks would engage holders of foreign currency in tripartite arrangements to obtain an agreeable rate.
That rate plus banks’ spread would then be used to open dialogue with importers who hold valid RBZ exchange control approvals. On conclusion of a deal, the information would be passed to the central bank to compute the weighted average market rate and advise the market accordingly.
“This option may see rates start off high and quite sporadic but will harness even grey market funds into official channels,” the committee said. “Over time confidence in the determination process will become entrenched and the market will stabilise with the requisite incentivisation of exporters being achieved in the process.”
Under the new management system, the export retention level was increased from 50% to 70% for all exporters, while NGOs, embassies, international organisations, diasporans, Homelink, importers and sellers of free funds will now sell or buy foreign currency at a market-determined rate.
While exporters will benefit from the adjusted export incentives and the new exchange rate, principal importers are likely to experience problems of a higher exchange rate and the imminent foreign currency-denominated import duty, unless they are accorded special dispensation.
Bankers who spoke to the Zimbabwe Independent on Monday said the system must be able to sustain the manufacturing sector as well as keep importers happy. They however decried the lack of adequate planning prior to the announcement of the policy.
“If, for example, the rate is $90 000 to the US dollar, an importer will now require $90 billion to purchase just US$1 million,” said a banker. “This can be good news to the exporter, but at what price will the importer sell his products on the domestic market? This is imported inflation.”
The other two options centred on coming up with a managed exchange rate system to be determined by bankers or exporters, without the central bank.
This was deemed unworkable.
Bankers and the central bank have yet to announce a final plan to bring the system into operation.