BANKS endured a heavy bruising on the foreign currency market this week as they trailed the parallel market, dashing the hopes of the Reserve Bank of Zimbabwe (RBZ) that liberalising the foreign currency market would kill the parallel market.
As the parallel market rates surged higher, parallel market dealers appeared to have regained their footing this week.
The largest surge on the parallel market was recorded on Wednesday when rates rose from $340 million to $400 million, threatening to derail foreign currency mobilisation by banks.
In the first quarter monetary policy statement, Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono liberalised the foreign currency market and allowed it to trade on a willing buyer-willing seller basis.
This week marked the third week since the initiative was introduced.
Gono sought to cripple the parallel market which had been flourishing for the past seven years and had worsened since 2004 due to serious distortions between the official exchange rates and the parallel market rates.
However, instead of eliminating the parallel market, the liberalisation increased the competition owing to minimal foreign currency receipts, declining production levels and increased money supply growth which has seen too many dollars chasing too few commodities.
Since its introduction, the official market has been in a tug of war for free funds with the parallel market.
The parallel market started off shaky but has since stabilised and is now determining the rates for foreign currency, with banks in pursuit.
This week, banks were buying the US dollar at rates of between $373 million and $390 million. Stanbic bank was paying $370 million while Kingdom was paying at $395 million. Barclays was paying $373 million while the ZABG and MBCA wee both paying $370 million.
However, parallel market dealers were paying at rates between $400 million and $440 million for the US dollar yesterday.
Economists said the interbank rates would not catch up with rates offered on the parallel market owing to huge demand and very low supply.
“The scarcity is still there,” said Harare based economist, John Robertson.
“Nothing has been done to eliminate the scarcity, there are no exports.”
Robertson said the Reserve Bank of Zimbabwe (RBZ) priority list had also worsened demand as it forced retailers to source foreign currency for needs not included on the list from the parallel market.
He also said the failure by banks to sell to the business community to sell foreign currency to businesses was pushing companies to continue buying on the parallel market.
“The priority list set out by the Reserve Bank also left out the needs of retailers buying other goods required by the public,” Robertson said.
“The ones catered for are not being served. The ones not catered for are also not being served. All of them will obviously go back to the parallel market.”
Confederation of Zimbabwe Industries (CZI) president Callisto Jokonya confirmed that most of the CZIâ€™s members were not accessing foreign currency from banks.
He however denied that CZI members were resorting to the parallel market for funds.
“We are not yet sure why that is happening, but at the same time we are not buying from the parallel market,” Jokonya said.
Kingdom Bank economist Witness Chinyama said the parallel market had maintained an advantage over the interbank market on the back of high demand.
“The [parallel] market always opens the day higher than what banks are offering,” Chinyama said.
“The RBZ average rates that start the day are failing to catch up with what is being offered owing to demand.”
Banking sources also said questionable activity by some bank employees was playing a major part in keeping the parallel market alive.
“Some bank clerks and managers are supplying dealers with cash above maximum withdrawal limits,” one source said.
“Others are busy diverting business, buying the money from holders of free funds as if they are buying for the bank and then selling at more lucrative rates on the parallel market.”
Others were reported to be diverting would be clients to parallel market dealers, depriving banks of foreign currency.