- The Bank has allotted 4.1 billion since June 2020
- However, the allotments were not enough to curtail parallel market activities
- When the auction market was introduced in June 2020, the ZWL traded at 57 against the greenback
Harare- The Reserve Bank of Zimbabwe says the Foreign Exchange auction Market has allotted US$4.082 billion to companies since its inception in 2020 to May 2023.
The Foreign Exchange Auction Market was introduced in June 2020 by the Central Bank in a bid to arrest the runaway parallel market and restore confidence and stability. This was to be achieved through the provision of foreign currency to companies at an affordable rate, cheaper than the inflated black-market rate.
“Total cumulative foreign exchange auction allotments since inception of the Foreign Exchange Auction System stand at US$4 082 018 081,” said the Bank in a circular.
When the auction market was introduced in 2020, the Zimbabwe dollar traded at 57 against the greenback and to date, the deficits have widened by 99%. This means the auction has failed to enforce Zimbabwe dollar stability.
One of the main reasons why the auction market has failed to enforce stability, besides its undersupply is the overvaluation of the system. The Zimbabwe dollar’s value on auction is fictious as it is not determined by market forces but a stagged rate by government.
Overvaluation of the currency means exporters are incurring huge losses through the surrender portions. In turn, production of more export products and productivity, investing in new technology and value addition is curtailed leading to low exports and poor export-products. Such a situation deprives a nation of foreign currency which is key in correcting parallel market’s madness.
An overvalued Zimbabwe dollar broadly undermines the scope for maximising structural efficiency and the growth of both the export industry and import substitution. The government needs to float the Zimbabwe dollar and allow it to find its natural mark and remove the fiction of the interbank rate.
So, instead of curtailing the black-market rate and ensuring stability, the auction system has played a pivotal role in amplifying the problems, inflicting more pain on export companies.
The system is also undersupplied leading to huge backlogs which peaked up to 9 weeks especially in 2021 and 2022 against a required period of seven days.
Currently, the auction market rate is trading at 5000 against the greenback while the black-market rate has already surpassed 13 000 against the dollar. This is despite the Central Bank preaching the gospel of a liberalised auction market.
The Central Bank had also been blamed for fuelling inflationary pressures through the auction market system by glutting the market with the Zimbabwe dollar liquidity to buy forex from companies through surrender portions.
Therefore, despite huge allocations totalling US$4 billion, the auction market has failed to meet its mandate, managing the parallel market rate and enforcing currency stability.
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