Zimbabwe: Bankers, Analysts Call for Forex Market Liberalisation

20 January 2023

The Reserve Bank of Zimbabwe said the country had total foreign exchange payments of US$8,6 billion in the year 2022, but only 3 percent of that money was facilitated through the interbank market.

Foreign Currency Accounts accounted for the biggest chunk as it processed 84 percent of the payments and the auction market taking care of the other 13 percent.

Such dynamics have resulted in economic analysts and bankers calling for the market to be further liberalised in order to see the interbank market increase its participation in the foreign currency market.

According to the RBZ; "Total foreign exchange payment for the period January 2022 to December 2022 were US$8,6 billion broken down as follows, (i) foreign currency accounts US$7,3 billion (ii) foreign exchange auction allotments US$1,1 billion and (iii) the interbank market US$218 million."

Economist and FBC Research Analyst, Enoch Rukarwa, says thin liquidity on the interbank market remains largely a phenomenon of a limited supply side creating a continuous bullish trend.

"The interbank market disequilibrium due to a crawling peg can only be addressed by free floating the market structure. Alternatively, the Reserve Bank of Zimbabwe can broaden the peg to simulate semi-market conditions at the same time reducing the parity between official and alternative market rate," he said.

The auction system was created to bring transparency and efficiency to the allocation of scarce resources like foreign currency. However, the widening gap between the official and black market rates continues to be a cause for concern for many companies.

On the parallel market, one US dollar can sell for $1 200, while selling at $732,00 as at the recent auction.

Bankers Association of Zimbabwe (BAZ) chief executive, Fanwell Mutogo, believes that if the RBZ takes into account changes proffered by the International Monetary Fund (IMF) of letting the market find the true value, then we will have more trades on the interbank market.

"From where we stand, this is really a national problem because when you look at it, it is about the behaviours that we are all seeing in this market and we need to have a rate that is determined by the players and not be tied around the auction," Mutogo said.

Economist Dr Prosper Chitambara said; "We need to unify the two exchange markets as it is not desirable to have slightly two different rates as they bring about arbitrage opportunities."

According to Chitambara, a market based system is the best and I believe allowing the interbank market to be the fore-market.

"When unified we need to lean more to the interbank market as it pushes price discovery quite quickly than the foreign market auction as it is more market determined and it will be important that we have a single official foreign exchange market," Chitambara said.

Foreign currency shortages have been a perennial economic problem for Zimbabwe, and although it has been on up and down since independence, the country has for the large part been living with very high black-market premiums.

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