Rutendo Nyeve, Sunday News Reporter
THE Reserve Bank of Zimbabwe (RBZ) is refining its auction system in a bid to close the gap between the official and parallel market exchange rates which have haunted the economy, the Governor, Dr John Mangudya has said.
RBZ launched the Dutch auction system in June 2020 with the aim of improving transparency and efficiency in the trading of foreign currency in the economy.
The system became a foreign currency price discovery mechanism which would avert the parallel market inefficiencies and volatility regularly witnessed as shadowy actors were determining the exchange rate on a daily basis.
Following the recent increase in the parallel auction system, Dr Mangudya said the Central Bank was moving in to refine the auction system.
Reserve bank of Zimbabwe
In an interview with Sunday News on the sidelines of the just ended Annual Mining Conference in Victoria Falls, Dr Mangudya said the formal retail shops were now expensive than the informal traders because of the gap in the exchange rate between the official and the parallel market rate.
“The formal retail shops were now expensive than the informal traders in various basic commodities because of the gap in the exchange rate between the official and the parallel. So now we are aligning the gap between the two exchange rates and the gap is now getting low.
“We have done so through refining the auction system by ensuring that the willing buyer willing seller procedure is done well. We are ensuring that we only sell the little foreign currency that we have to the highest bidder,” said Dr Mangudya
He said past experiences, rather than basic economic issues were to blame for the country’s exchange rate volatility.
“When you see the rate moving because of the Zimbabwe dollar, that’s because of the self-fulfilling negative inflation expectation.
“There is the hysterical scenario or otherwise the once beaten, twice shy scenario, whereby people were beaten before by hyperinflation in 2008 and were beaten also in 2019 when we came up with new currency reforms. Human beings are rational.
“So, because human beings are rational, they always think about the negative of whatever they would have seen. So, what they do whenever they get excess of the local currency, they try to go and buy foreign currency in the parallel market.
The demand for foreign currency in a dual currency system is unlimited,” said Dr Mangudya.
The Central Bank Chief reiterated that the country cannot dollarize as there was no capacity to do so.
“We have more than US$2.4 billion dollars in circulation but US$1.4 billion is in banks as deposits.
“However, this money belongs to very few people particularly companies like mining companies.
For example, Zimplats is one of the biggest exporters hence they earn foreign currency.
“As such you will realise, most of the foreign currency is for the mining sector and not for individuals.
As such we do not have capacity to dollarise because numbers don’t lie,” said Dr Mangudya.
He said what it then means was that there was need to embrace the local currency for local purchases so that foreign currency was reserved for imports.
The introduction of the auction system in 2020 witnessed the stabilisation of the exchange rate which had been volatile in 2019.
The refining of the of the auction system is expected to avert the re-emergence of a volatile exchange rate. — @nyeve14.