THE battle between parallel market dealers and the banking sector for the little foreign currency in the country intensified this week as exchange rates galloped ahead.
The parallel market dealers were this week battling to match rates that were being offered by authorised dealers.
This has pushed the exchange rate to as high as US$1:$200 million as the competing markets tried to offer competitive rates to attract foreign currency holders.
The fragile Zimbabwean dollar which was trading at US$1:$110 million on Monday last week slumped to $180 million to the US dollar last Friday.
The surge in the rates which reflect how much the Zimbabwean dollar has lost value within a week followed the liberalisation of the foreign currency market by central bank governor, Gideon Gono.
In his first quarter monetary policy statement last Wednesday Gono allowed the Zimbabwe dollar to float on the market. He allowed the market to determine the exchange rate on a willing buyer-willing-seller basis.
The logic was that this policy shift would kill the parallel market which has been flourishing for the past four years due to the disparity between the official and parallel market exchange rates.
The refusal by the government to open the foreign exchange market and the perennial shortages of hard currency also nourished the black market.
Instead of instantly killing the parallel market the liberalisation has served to push up the rates because of the competition among the buyers for the little foreign currency that is still finding its way into the country.
Parallel market dealers however felt the pinch as they were forced to narrow their margins to keep pace with the movement of the rate on the official market.
By yesterday parallel market dealers had pushed their rates to US$1:$200 million as they tried to match an average of US$1:$210 million that was being offered by the banks.
Banks were buying the United States dollar at rates ranging from $195 million to $214 million while most black market dealers in Harare were buying at rates between $190 million and $210 million.
Kingdom Bank was buying the $195 million and selling at $205 million. FBC Bank, Premier and CFX were buying at $204 million. Their selling prices were however different. FBC was asking for $205,011 million, Premier ($205 million) and CFX ($206 million).
The highest offer for the US dollar was coming from ABC Bank which was paying $214 million. The bank was selling at $216,5 million. Standard Chartered Bank was buying at $208 million, ZABG ($202 million) and Stanbic Bank ($204 million). The RBZâ€™s foreign currency purchasing centres were buying at the average rate of $204 565 727,39.
This week marked the first full week of foreign currency trading by banks since the Reserve Bank of Zimbabwe (RBZ) liberalised the foreign exchange market last week. The rate movement has been dramatic since trading opened last Friday.
On Monday, banks were buying the US dollar at rates between $155 million and $170 million while parallel market dealers were offering rates between $100 million and Z$130 million.
The biggest constraint for the parallel market has been the liquidity crunch arising from the new cash withdrawal limits set last week by the RBZ of just $5 billion.
As the cash shortages continued to bite some black market dealers opted to move their business to the bank transfers where the US dollar was fetching a good premium. Although not severely hit by the cash crisis banks also showed signs of failing to cope with the cash requirements for the foreign currency trading.
Holders of foreign exchange are permitted to liquidate a maximum of US$150 a day. This limit â€” which analysts say is a form of interference in the market â€” seemed to have created some breathing space for the parallel market traders who took advantage of the people trying to move huge volumes.
“We are under pressure from the banks. We just have to match the formal market or we will be out of business,” said a foreign currency at RoadPort who only identified himself as Martin. The sudden movement in the rate had also hurt the middleman in the parallel market.
A sharp increase in the rate tends to put the middleman under pressure.
“Everyday I have to debate whether I go home with local currency or foreign currency because you never know what going to happen in this market,” added Martin.
A survey carried out across Harare showed that most holders of foreign currency were now opting to sell their foreign currency with banks.
Queues for people selling their foreign currency at banks easily outstripped queues for local currency withdrawals in banking halls during the week.
ZABG economist, David Mupamhadzi said there was no reason for people to risk being caught trading on the parallel market when banks were buying at higher rates than the parallel market.
“It is a willing seller, willing buyer relationship,” Mupamhadzi said.
“There is no justification as to why people will continue selling on the parallel market.” Mupamhadzi said it was now up to the banking sector to ensure that the system worked efficiently and manage to attract all foreign currency initially meant for the parallel market.
“The banking sector has to make sure operations are smooth. Some form of stabilisation will be reached but not soon,” he said.
However another economist, Professor Tony Hawkins, said stabilisation of rates would not be achieved any time soon because of the unsustainable increases in money supply. “The big question is how long it will continue before government stops it,” said Hawkins. “With the rate that money is being printed, the rate can only go up and so will inflation. It is a vicious cycle.”
Hawkins said he estimated inflation to be above 400 000% adding that it was likely to rise further with the new policy.
“There is no production to match the increases in supply of money,” Hawkins said. “The new policy may see banks starve off the parallel market but that will not stop the Zimbabwean dollar from losing ground against all major currencies.”