Zimbabwe: RBZ, Business Commit to Fight Exchange Rate Crisis

Reserve Bank of Zimbabwe.
12 October 2021

A High-Level meeting between the Reserve Bank of Zimbabwe (RBZ) and key business leaders resolved expeditiously tackle the exchange rate crisis which has pushed prices of basic goods and services up over the past few weeks.

Premiums on the parallel market last week reached a high of US$1: $200, prompting the central bank to expose around 77 people alleged to be responsible for the parallel market mayhem.

In a bid to contain the exchange rates, among other measures, RBZ launched the foreign Exchange Auction platform last year which has been largely hailed by most companies as a reliable source of foreign currency.

Nevertheless, illegal dealers and other formal shops last week pushed the parallel market higher causing speculation driven panic.

The developments prompted the RBZ, Finance and Industry Ministries to convene a high-level engagement meeting with the Bankers Association of Zimbabwe (BAZ), retailers groups and the manufacturers to chat the way forward.

In an update released at the end of the meeting, RBZ governor, John Mangudya said the parties committed to uphold exchange rate stability.

"The Bank undertook to continue tightening money supply under its conservative monetary targeting framework to ensure that money supply would not be a source of exchange rate destabilisation and to accelerate implementation of special attractive exchange rate linked instruments as an alternative investment avenue for local currency to the holding of US$," Mnagudya said.

RBZ also committed to review bank policy rates to curb speculative borrowing, refine and streamline the foreign exchange auction system to ensure that it continues to play its price discovery role in the foreign exchange market; and deal with the funding backlog of foreign exchange allotments and take appropriate measures to ensure that the backlog does not recur.

The Bankers Association of Zimbabwe (BAZ) which partook in the deliberations pledged to ensure that all bids submitted to the foreign exchange auction are authentic while ensuring continued due diligence on all their customers and applications for foreign exchange.

The association committed to refrain from facilitating parallel market transactions through matching and improving efficiency in facilitation of Letters of Credit.

BAZ committed to enhancing reporting of suspicious transactions and promptly implementing regulatory directives on freezing of bank accounts for participants in illicit foreign currency transactions while promoting confidence in the banking sector by clearing the foreign currency backlog.

Retailers groups attending the meeting committed to end the menace of foreign currency traders milling outside and around shops and trading areas, identifying and bringing to book funders of foreign currency traders and dealing with informal traders operating without licences and sometimes outside legal or policy parameters.

"The manufacturing sector undertook to ensure responsible pricing and to comply with the three focal areas under the SI 127 of 2020 highlighted above. On their part, the Government and the Bank pledged to continue supporting the manufacturing sector by levelling the playing field to ensure that exporters obtain a fair value of their export earnings," added Mangudya

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