Gono Abandons Interbank Rate

RESERVE Bank governor Gideon Gono this week disowned the official exchange rate for a parallel exchange rate as it became apparent that the interbank rate had failed to attract foreign currency to the formal market.

In what could mark a major shift in the country’s foreign exchange regime, the central bank chief told delegates at the National Economic Consultative Forum conference that the Reserve Bank had abandoned the widely criticised willing-buyer, willing-seller priority-focused twinning arrangement exchange rate.

Announcing government’s intentions on reducing foreign currency retention for exporters Gono said the central bank would buy foreign exchange using what he termed the United Nations (UN) rate.

“With effect from December 1 retention has been reduced to 15% from 25%,” Gono said. “We will buy the foreign currency at the UN rates. The rates apply all over the world and are free from aberrations.”

Despite acknowledging the parallel market rate, Gono however denied allegations of manipulation of the exchange rate by the central bank. Instead he blamed commercial banks for suppressing movements in the interbank exchange rates in their quest to maintain minimum capital requirements, which were until last month pegged against the redundant interbank rates.

Banks are however now required to maintain a minimum capital requirement of US$12 million in hard currency.

“I don’t dictate what it (interbank rate) should be…Go there (to the banks) and request the exchange rate you require. It is willing buyer, willing seller. We liberalised it kudhara (the exchange rate is already floated.)”

The central bank introduced the ongoing exchange in May after several years of fixing the local currency against major currencies.

Although he did not elaborate the modus operandi of the UN exchange rate, information gathered indicates that the rate is another form of parallel market exchange rate that is determined by non-governmental organisations (NGO) accredited to the country.

Banking sources that spoke to this paper said the rate emerged when the central bank locked up several funds belonging to NGOs and foreign currency account holders. This closely kept “secret” according sources was aimed at improving foreign currency inflows for the debt-ridden government. 

With no credit lines available, government is understood to be diverting huge sums of foreign exchange generated by exporters to meet various needs such as grain importation and bailing out loss making parastatals.

So subdued are the official exchange rates that the local currency traded at ZWD 100 330.21 against the United States dollar compared to a record $9 million on the parallel cash rate which surged after the increase of daily withdrawal limits by the central bank.

The Reserve Bank reviewed the limits to $100 million per week from a paltry daily withdrawal of $500 00 on the back of runaway annual inflation now estimated to be over a billion per cent.

Announcing the relaxation of the foreign exchange rate in April, Gono said the then new rate would be guided by a “predetermined priority” list set by the Reserve Bank in consultation with various stakeholders. But barely a few weeks after the introduction of the interbank rate, the central bank reportedly faced enormous pressure from suspected government hardliners who were pushing for the suspension of the exchange rate, which subsequently resulted in the central bank “managing” the rates.

Appealing to the attorney-general’s office to effect stiffer penalties on individuals and companies violating banking regulations, the Reserve Bank chief two weeks ago acknowledged parallel market rates when he said government should charge more $10 million in bail which he said translated to US$0,01 on the parallel market.

Meanwhile a draft economic recovery package compiled by incumbent permanent secretaries proposed that the new government manage the exchange rate.

“The economy is presently constrained by multiple exchange rates which occasion rent seeking arbitrage conditions and over-arching subsidies,” read the report. “Going forward, a uniform price in the foreign exchange market is critical for stabilisation. In this regard, an “implicit managed” floating exchange rate is envisaged, underpinned by both fiscal prudence and monetary austerity.”

By Bernard Mpofu