eBusiness Weekly
Business Writer
Holders of foreign currency can choose to participate directly on the auction system where they can offer foreign currency at their own reserve price, according to monetary authorities.
When the foreign currency auction system was introduced last week, there were fears that sellers were only rate takers and had no say on the price of their foreign currency.
Prior to the introduction of the auction system, the Reserve Bank of Zimbabwe had been silent on what role foreign currency holders would play in price determination.
Through Exchange Control Directive RV175/2020, the central bank outlined how the Foreign Exchange Auction Trading System (FEATS) would operate.
However, the directive only outlined the bidding system where bidders shall submit bids for the available foreign currency indicating preferred bid rates.
It also outlined the foreign currency bidding arrangements as well as measures to support the FEATS.
On the part of sellers, the directive only stated sources of foreign currency but was silent on how sellers were to conduct themselves with regards pricing.
The assumptions were thus made that foreign currency holders would be rate takers on the market.
In its Foreign Currency Auction Policy Response Paper, the Confederation of Zimbabwe Industries alluded to the issue and said exporters should be given an active role in price determination.
It said to enhance market confidence there was need to bring “exporters into the auction and allowing them to place their money and set their reserve price”.
“It will increase supply of forex to the auction,” reads part of the CZI paper.
In 2004, when the auction system was tried, one of the reasons it collapsed was that exporters, who had no say in exchange rate determination, thought they were being prejudiced of their hard earned money.
Paddy Zhanda, who was the then chairman of Murray and Roberts (now Masimba Construction), felt the then auction system showed apparent disregard for exporters.
“A viable auction system is one that lends itself to supply and demand forces while allowing sellers to withdraw the currency if the price on offer is unsatisfactory.
“As long as the pricing of such foreign currency is one-sided exports will not be viable,” Zhanda said at the time.
“A viable auction system is one that lends itself to supply and demand forces while allowing sellers to withdraw the currency if the price on offer is unsatisfactory.
“It is our hope therefore that this apparent disregard for exporters will be addressed by the monetary authorities.”
Similar concerns were raised by Oliver Chidawu, the then chairman of Zimplow, who said the system “adversely affected export viability”.
At the time, exchange rates at the auction system were lower than those prevailing on the parallel market.
But in an effort to come up with an effective and efficient foreign currency market, the Monetary Policy Committee, in a statement released on Tuesday, announced that holders of foreign currency had direct access to the auction system where they could set their reserve prices.
“The Committee urged foreign exchange recipients (including exporters, NGOs, bureaux de change and receivers of remittances) to participate directly in the auction process by offering currency to the bank at their preferred reserve prices.”
This, the Committee believes, will enhance the efficiency and effectiveness of the Foreign Currency Auction System.
