eBusiness Weekly
Ndaka Majaka
Zimbabwe’s major industries lobby group, the Confederation of Zimbabwe Industry (CZI), is pushing for an independent foreign currency exchange market in the wake of a runaway exchange rate, the threat of re-dollarisation and rapid depreciation of the RTGS Dollar.
In a draft paper prepared by the CZI’s Economists’ RoundTable, the business member organisation said Zimbabwe immediately needed a mechanism that allows bankers to freely trade in a market administered by an independent person or body following challenges on the official foreign exchange market, the Interbank Market.
The industry body said the current mechanism of the Interbank Market – whose USD: RTGS$ exchange rate is now just above 1:6 – was prone to internal trading, private deals, favouring own clients, conflicts of interest and corruption.
“That is why it has failed to function properly and should therefore, be replaced by an independent market… All authorised dealers from banks should gather in one room on a daily basis. The amounts to be traded, bids, offers and trades should be transparently recorded,” said CZI.
Economists from the business member organisation have recommended that an independent body could be observed or monitored by Treasury and the central bank.
“This mechanism will function on the principle of willing buyer willing seller, driven by the forces of supply and demand. This solution is simple and straightforward and is similar to what the Zimbabwe Stock Exchange does on a daily basis. It is also what all the stakeholders in the market, including industry players, treasurers of banks, and economists, are advocating for,” the CZI said.
Zimbabwe is currently confronted with a runaway exchange rate on a parallel market, which has become the main trading platform for foreign exchange. Formal and informal pricing is now based on the parallel market exchange rate, with little relevance being assigned to the formal interbank market rate.
The CZI paper shows that the informal businesses, most formal businesses, and lately even government have resorted to pricing in US dollars and offering an RTGS alternative, which is priced above prevailing market rates.
CZI consultations indicate that exporters are not actively participating on the interbank market chiefly because they are illiquid since they surrender 50 percent of foreign exchange earnings to the Reserve Bank of Zimbabwe (RBZ).
“Exporters are not active on the interbank market because the balance that they retain is used to re-invest in their businesses. They are paying local suppliers using their Foreign Currency Accounts to avoid high RTGS prices. There are unfavourable rates on the interbank market relative to the parallel market.
“They get enough RTGS$ from surrender requirements to meet their local RTGS$ payment needs. Instability of the RTGS has made it an unreliable currency to hold as a store of value and they also pay some of their fiscal obligations in foreign currency,” the CZI paper said.
In recommendation, the paper suggest that there be retention and automatic sale of export earnings.
“The key to lowering the exchange rate and bringing it closer to the equilibrium is to put mechanisms and measures in place, which result in an automatic monthly flow of foreign currency into the interbank market,” the paper said.
CZI also notes that it is important that government departments accept statutory payments in the RTGS$.
“Government needs to send out a clear message that the RTGS dollar is the sole currency in which all government duties, levies, fees and costs are paid. The Zimbabwe Revenue Authority and other government agencies and ministries should not collect foreign currency, and they should send out a strong message of confidence in the RTGS dollar.
“Situations where a government department or agency has a US dollar price and then gives an alternative of RTGS as a payment mode at the interbank rate should also be stopped forthwith,” the paper reads.
Additionally, the CZI also called for transparency in the management of monetary issues and a new national currency, eventually.
“Stabilisation of the value of RTGS balances is the first and foremost precondition for any consideration on the introduction of a national currency. However, no national currency will be trusted, have the confidence of the people, or maintain its value, unless fiscal and monetary prudence are maintained.”
