HomeEditorial CommentLong-term stability of forex auction vital

Long-term stability of forex auction vital

THE foreign currency auction introduced in June this year has gone some way to stabilise the Zimbabwean dollar, but more still needs to be done to achieve long-term sustainability.
After a turbulent period in which the Zimdollar rapidly lost value due to the introduction of the local currency through Statutory Instrument 142 0f 2019 without the set benchmarks, the weekly auction has brought a semblance of stability.

The auction prioritises companies which buy raw materials for both big business and small and medium enterprises. This has resulted in the Zimdollar stabilising at around US$1:81. It has improved the availability of forex.

However, major concerns remain as spelt out in an interview with Employers’ Confederation of Zimbabwe president Israel Murefu which is carried elsewhere in this edition.

“Some businesses cannot access the foreign currency from the auction because they are barred or disqualified from the auction for technical reasons or are not in the first priority area which is accorded first preference in forex allocations. Where are these players satisfying their needs for foreign currency from?

“That explains the existence of the parallel market although the premium which is the difference between the auction rate and alternative market rate has narrowed and the auction rate itself has stabilised — which is a positive indicator,” the Emcoz president said. “It is its stability and sustainability in the long-term which may not be guaranteed.

“If we generate enough foreign currency in the economy and we effectively manage reserve money supply, then long-term stability can be realised. It may be too early to celebrate the current stability we are seeing in the foreign exchange market. Free market forces and a willing-buyer willing-seller set-up needs to prevail in the market for us to gauge the true value of the Zimbabwe dollar vis-à-vis the US dollar”

Therein lies in the problem. A number of companies are not accessing the much-needed forex from the auction. In a recent interview with our sister paper, NewsDay, Unifreight Africa Limited chief executive Robert Kuipers narrated the challenges they face to get forex from the auction, pointing out that they get only 10% of the forex required for their operations.
This could eventually bring about the return of the chaos which characterised the parallel market as companies seek the scarce forex.

The demand for forex to sustain the local economy is not yet being met by the auction system and bulk of the foreign currency traded is circulating outside the formal banking channels.
The belief in some quarters that the central bank is fiddling with the exchange rate on the auction market, which Reserve Bank of Zimbabwe governor John Mangudya has strenuously denied, also points to the confidence deficit in monetary authorities. Government needs to find lasting solutions to these challenges and only then can there be long-term stability of the local unit.

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