THE forex auction system introduced by the Reserve Bank of
Zimbabwe in June this year to contain the black market and stabilise the
economy has been a major failure and will not achieve targeted results, a
former Cabinet minister has said.
The forex auction, which replaced the interbank market
exchange rate system, has been taking place every Tuesday with companies
bidding for foreign currency and at the end of the day setting weekly official
rates.
However, Tapiwa Mashakada, who served as Economic Planning
and Investment Promotion minister in the shortlived government of national
unity, told NewsDay yesterday that the scheme would remain ineffective to deal
with black market rates that have been pushing prices of basic commodities to
unaffordable levels for the majority poor citizens.
“From the onset, one has to ask the following questions:
Who was driving parallel market rates? Why did the Interbank market fail? Is
the auction system sustainable? The major players now participating at the
auction system are the same players who were yesterday allegedly sourcing forex
from the black market to finance raw material imports and other foreign
payments,” he said.
“This had transformed the parallel market into an untamed
jungle with no rules, leading to runaway parallel market rates, all because
there was not enough forex to allocate on the market through the forces of
demand and supply. Similarly, the interbank market collapsed because demand
exceeded supply at the then prevailing rates. Moreover, forex buyers used the
arbitrage to offload some of the forex on the black market.”
Mashakada added that the development saw the emergence of
high premiums between the official and parallel market rates.
“With the introduction of the auction system, the official
rate rose from US$1:$57 to US$1:$83 as at August 23, 2020. In my view, it is
just the official rate that has caught up with the parallel market rate. The
premium still exists. For example, as at August 23, the parallel market rate
was US$1:$120 compared to the official rate of US$1:$83, which means that the
auction rate is a moving target. It will never catch up or be at par with the
parallel market for the following reasons: Importers will supplement what they
get at the auction from the parallel market in order to meet their full import
requirements and the diaspora remittances are around US$150 million per month.
This is money getting directly into people’s pockets. This money is liquidated
on the parallel market,” he said.
The opposition MDC Alliance official also pointed out that
part payments to gold producers and tobacco farmers are liquidated on the black
market with civil servants bonuses as well as those of embassy and
non-governmental organisations staff who receive their salaries in forex will
also be offloaded on the parallel market.Mashakada said the only solution to
the crisis was for government to decommission the Zimbabwe dollar.
“The market has dollarised. The only way to kill the black market
is to fully dollarise and decommission the RTGS/bond note, which is not going
to happen because of the pressures from employment costs of civil servants.
That being the case, there is a real danger that the parallel market rate will
pull up the auction rate until the price discovery mechanism begin to fuel
inflationary pressures. The auction system has temporarily managed to slow down
the price level changes, but this does not mean the current prices are tenable
at the current levels of incomes,” he said.
“The auction system is fatally flawed because it is
preoccupied with the demand side of forex and not its supply. The elephants in
the living room are: lack of forex supply response and a monocurrency that is
worthless. Unless these two mischiefs are addressed, the auction system will
remain a price discovery mirage. The monocurrency is a surrogate currency. By
December 2020, I hazard to forecast that the auction rate will breach the US$1:
$100 mark. I hope I will be proved wrong.” Newsday
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