‘Forex monopoly creating industrial crisis’

THE central bank must liberalise the foreign exchange market to bolster the supply side and arrest delinquency, the Zimbabwe Coalition for Debt and Development (Zimcodd) has advised.

Zimcodd warned that the Reserve Bank of Zimbabwe (RBZ)’s continued operation as the only supplier was unsustainable, and as the economy opened up industries might be confronted by a real crisis.

Zimcodd said the RBZ’s foreign currency auction system introduced in June last year had failed to stem a currency black market as demonstrated by businesses’ continued use of expensive parallel market rates as the benchmark for setting prices.

Zimcodd added that firms accessing cheap foreign currency from the auction system were proceeding to charge goods and services at the same price as those buying it on the black market.

The forex auction system, which had allotted about US$800 million by February, managed to stem a volatile exchange rate with big firms acknowledging huge savings.

But Zimcodd said pockets of weaknesses had been caused by the fact that the RBZ was the only institution officially providing forex.

“This has caused many people to have questions on the reliability of the official exchange rate,” the paper said.

“Despite monetary authorities insisting that the auction rate depicts the correct market trends … the parallel market signifies the ‘real exchange rate’. It is against this backdrop that the RBZ is strongly recommended to liberalise the foreign exchange market. The issue of having the RBZ as the sole supplier of foreign currency to the market is not sustainable. The foreign currency supplied by the RBZ is not enough to meet requirements, hence some of the economic agents resort to the black market where there are ‘no rules’ to buy the hard currency,” Zimcodd said.

The forex auction system was a response to exchange rate volatilities which were blamed for rocketing prices and high inflation.

Following the introduction of the system, rates fell from about US$1:$165 during the first quarter of 2020 to less than $120 in December. However, pockets of volatilities returned in January.