HomeOpinionNew perspectives...Understanding, assessing bureaux de change facility

New perspectives…Understanding, assessing bureaux de change facility

By Tariro Chivige & Learnmore Nyamudzanga

In June 2020, Zimbabwe started using the Dutch Auction System to trade foreign currency. Initially the Tuesday auction was only meant for large companies with bids starting from US$50 000 up to US$500 000 per each bidder per auction. Following the outcry from small-and-medium enterprises (SMEs), the Reserve Bank of Zimbabwe (RBZ) in August 2020 introduced Thursdays auctions where SMEs can bid for smaller lots of between US$2 500 and US$20 000. The RBZ was now running weekly forex auctions for large firms and SMEs which were not covering individuals not in business but still needed foreign currency.

We then saw the RBZ, in April 2021, announcing that it was going to sell foreign currency to bureaux de change for on-selling to micro-, small-to-medium size enterprises and ordinary individuals for their productive requirements. The facility was meant to cover levels below the minimum qualifying threshold of the SMEs foreign exchange auction.  However, this did not yield immediate reaction from the RBZ. Only in September 2021 did the bureaux de change start selling foreign currency to walk-in clients as per August 27, 2021 resolutions by the RBZ monetary committee (MPC).

This was done to promote financial inclusion and access to forex for small value transactions. It was also meant to cushion citizens from punitive parallel market exchange rates as the parallel market rate was almost doubling the official rate and the gap between the two kept on widening.

This widening gap made it difficult for the ordinary citizens to afford small value transactions especially those that are charged in the USD for example, school fees, medical bills, DSTV, buying fuel at Direct Fuel Imports (DFI) service stations, rentals and in some cases groceries since they were cheaper in forex.

In terms of the MPC’s resolutions, members that wish to buy the forex should only submit a national identity card and they can buy the maximum prescribed amount of US$50 per week at the RBZ ruling auction exchange rate prevailing during that week. Previously, only those with passports and needing to make external payments, after producing the proof, could buy relatively small amounts of forex at a bureau de change. Members of the public can now buy foreign currency at the official exchange rate of about ZW$93,08 plus a commission of just 10 percent, which comes to around ZW$102,39 for US$1, a significantly lower price than the parallel market rate of ranging from ZW$160 to ZW$180 (or more) to the greenback. Some of the bureaux de change offering this facility include Homelink, Quest Financial Services, Canarium, Western Union, ContiCash and bureaux de change found in some Ok Mart shops just to mention a few.

Concerns around the facility

The initiative was welcomed by some though accessing the hard currency remained a challenge. The initiative had good intentions but there is high demand for the forex being distributed via this channel and many bureaux de change have highlighted that they do not have enough funds to cater for the domestic demand. This has resulted in some people failing to buy forex even after exhausting their allocations, hence some bureaux de change are denying the system manipulation allegations being levelled against them. The shortage has led to some rent-seeking behaviour especially by illegal money changers, who always try to find a way of benefiting from government initiatives that are meant to ease the effects of the parallel market exchange rates to citizens.

There have been some allegations from the public that illegal money changers are conniving with some of the workers from these bureaux de change as they are alleged to be using multiple national ID’s belonging to different people to access the forex. These money changers will then go about and sell the forex on the parallel markets for a higher rate. There are also claims that this system has presented a chance for arbitrage by those who are connected to higher powers and those who will also have access to the forex.

The only security system that is there to make sure that there are no abusers of the system is that one only produces an identity card, bank card in his/her name or a letter from the bank confirming that he/she is the owner of the card. That arrangement leaves room for abuse by money changers and unscrupulous individuals in connivance with staff from bureaux de change, who are claimed to be using ID cards not even in their names but still accessing this affordable forex.

With the already high demand of forex even on the parallel market, money changers are then afforded the chance to benefit and can still cash in from the arrangement.  The fact that the money changers already have huge sums of the local currency and also, due to their illegal shortcut dealings, this means that they will have the money to buy large sums of forex giving them an upper hand.

There are also concerns that people have to queue for long hours, some even sleeping in the queues violating Covid-19 protocols and in some cases only a few are getting forex from this facility. There is a lack of transparency on how much forex each bureau de change would have received for citizens to hold issuers accountable. Citizens are eager to know measures put in place to make sure these funds are not abused.

There are claims that security guards or staff at the bureaux are being bribed by those who don’t want to stand in queues. Money changers are claimed to be transferring money into unscrupulous or desperate unemployed individuals to buy forex on their behalf for a fee or at premium. In addition, some are now earning a living by standing in queues on behalf of others or money changers for a premium.

Those with connections do not stand in queues and there are claims that bookings are now being done in advance but citizens are concerned about transparency and integrity issues on such bookings. Furthermore, there are also claims that some citizens are selling their allocations on parallel markets taking advantage of the widening gap between official and parallel rate.

Way forward

Addressing the root causes of the differences between the official and parallel exchange rate will definitely go a long way in reducing the illegal money changers and unscrupulous individuals’ rent-seeking behaviour that is disadvantageous to the general populace of our country. Issues such as the deep-rooted mistrust the public has with the authorities is an issue that needs to be addressed in order to curb the widening gap.

The indirect increase in the money supply (suspected money printing) is also an issue that needs to be dealt with. This may be the result of increased payments to contractors for the unbudgeted construction projects that are underway in several parts of the country, as well as the money spent on farming inputs and paying farmers.

There is also a need for the foreign currency auction rate to adhere to the true (not managed) market forces of supply and demand as this will help in curbing what the RBZ Governor John Panonetsa Mangudya, described as behavioural factors that are fuelling the increase in the parallel exchange rates. Other options include increasing financial institutions offering this facility, or considering extending the facility to all banking institutions and avoid crowding in the queues otherwise these queues will soon become Covid-19 hot spots.

In addition, authorities should continuously craft mechanisms to curb manipulation of the facility by those who might want to take advantage.

Authorities should disclose amounts allocated to these bureaux de change, monitor and evaluate their activities for transparency and accountability purposes. Furthermore, authorities must review the allocation per individual upwards to US$100 per week as most service providers now charge US dollars.

  • Nyamudzanga and Chivige are Independent Economists and Analysts who hold Master’s in Tax Administration and Tax Policy and Masters in Economics respectively. They both hold degrees in Economics. These weekly New Perspectives articles are coordinated by Lovemore Kadenge, independent consultant, past president of Zimbabwe Economics Society (ZES) & past president of the Institute of Chartered Secretaries & Administrators in Zimbabwe (ICSAZ) now under a new name Chartered Governance and Accountancy Institute in Zimbabwe (CGI Zimbabwe) . — kadenge.zes@gmail.com or mobile +263 772 382 852

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