‘Forex auction system must be transparent’

THE Reserve Bank of Zimbabwe (RBZ) should be transparent for its foreign exchange auction trading system to be successful by, among other things, disclosing the names of winning bidders, amounts involved and the intended use, Zimbabwe Coalition on Debt and Development (Zimcodd) says.

BY MTHANDAZO NYONI

The central bank this week started implementing the foreign exchange auction trading system (FEATS), replacing the fixed exchange rate system which was introduced in March 2020. The first day of trading ended with the exchange rate at US$1:ZW$57:36, more than double the previously fixed exchange rate of US$1: ZW$25.

The fixed exchange rate system failed to restore confidence in the market as it was widely seen as not being in sync with reality. Businesses resorted to pegging prices on the parallel market exchange rate, which was seen as more realistic.

In its latest report, Zimcodd said the adoption of FEATS was expected to bring sanity to the foreign exchange market especially in ensuring transparency, accountability and efficiency in the trading of foreign currency in Zimbabwe.

“It is commendable that transparency and accountability are at the centre of the foreign exchange market in which auction results will be released and published on the auction day,” Zimcodd said.

“However, the bank did not disclose the nature of information that they are going to publicise. It is therefore in the best interest of Zimbabweans that the bank discloses the names of winning bidders, amounts involved and the intended use. This will go a long way in ensuring that the scarce foreign currency is put into good use.”

The central bank also promised to disqualify players found to be participating in the auction for the sake of currency manipulation, but Zimcodd feels more needs to be done.

“In this regard, Zimcodd strongly feels that disqualification is a necessary but not sufficient condition to discourage unscrupulous behaviour. Rather, the apex bank must put in place deterrent and punitive measures,” the organisation said.

Zimcodd said the auctioning trading system will only work when the central bank is sincere and allows the rate to be determined by the market forces.
“It is also commendable that the central bank will give preference to the import priority list. It is, however, Zimcodd’s view that the bank should pay directly to the suppliers of raw materials and equipment to avoid manipulation and for ease of monitoring,” Zimcodd said.

The organisation also said, over and above the measures in place, the RBZ should always be on the lookout for the abuse of the facility.

The organisation said it has reservations about the minimum cap of US$50 000 which crowds out the informal sector from participating in the bidding process, therefore creating an opportunity for third party transactions in which the informal sector will have to pass through to access foreign currency.

“The premiums involved in engaging third parties will increase the cost of doing business for the informal sector,” Zimcodd said.

“We are appealing to the central bank to come up with a dual auction system with one that accommodates the informal sector. This will go a long way in their retooling especially after three months of total lockdown.”

Monetary policies in Zimbabwe are characterised by inconsistencies and lack of harmonisation with the broader fiscal policy framework.

Within a period of one year, the bank has moved from free floating to fixed exchange rate and now the proposed auction trading system.