Thursday 29 June 2023


THE Zimbabwe dollar rose in value again yesterday, with a second wholesale auction of foreign currency for banks producing a weighted average of $5 739,7961 for US$1, a gain of 8.8 percent on the interbank rate for yesterday and taking the gains in the last three days to 17,4 percent.

While two wholesale auctions in one week of currency for banks wanting to buy foreign currency to service their customer needs is unusual, it has been done once before this month.

As with the standard Tuesday auction and wholesale auction, the banks were unable yesterday to buy most of the US$20 million the Ministry of Finance and Economic Development placed in the hands of the Reserve Bank of Zimbabwe to sell.

This shows the results of banks either not needing extra money for what their customers ask for, or the shortage of local currency following the steps by the Finance Ministry and the Reserve Bank to curtail drastically any new creation of local currency while mopping up what is already circulating.

The main mechanism for control is the decision that the Finance Ministry will buy the 25 percent of export earnings exporters are obliged to surrender. All the ministry does is use tax revenues stored in the local currency account of the Consolidated Revenue Fund, where all taxes end up, and deposits the foreign currency in the foreign currency account of the Consolidated Revenue Fund.

No money is created or destroyed.

When foreign currency from Government sources is sold, it is again a transfer between the two accounts in the fund in the other direction.

Of the US$20 million on offer yesterday, just eight banks put in bids totalling US$3,592 million. In an innovation in the new strict Dutch auctions, the Reserve Bank did not allot four bids, allotting just US$2,94 million. The explanation for this move was: “The cutoff rate was guided by the need to conform to international best practice on spreads within the financial sector.”

This would mean that the four unallotted bids would have been considered too low considering the other higher and successful bids. If those four bids had been accepted, the Zimbabwe dollar would have gained even more, but the rates the top paying bank would have to charge would be a lot different from what the bank with the cheapest currency would have been able to charge.

However, the top bid was just $6 000 for US$1, and the lowest allotted bid was $5 263,16, producing that weighted average of $5 739,7961.

The US$20 million offered yesterday appears to have been the almost US$20 million left over from the US$30 million offered on Tuesday. It was not so much new money but money already committed to auctions this week.

The banks have paid a wide range of prices for the US$13 million they have bought this week on the two wholesale auctions, paying between $7 155 as the top bid on Tuesday and $5 263,16, the bottom bid yesterday. This will mean that banks should use different prices for the currency they sell on to their customers. The interbank rate is itself a weighted average of what the 19 banks buy and sell foreign currency for each day. It only becomes the flat rate for all non-banking transactions.

Economist Mr Persistence Gwanyanya yesterday said: “It’s clear that the Zimbabwe dollar is drying up in the market as RBZ injects money in banks and as Treasury underwrites the Zimbabwe dollar especially by increasing Zimbabwe dollar payment requirements for income taxes, commonly known as quarterly payment dates.

“This explains why the exchange rate has been cooling off in both the interbank and parallel market. Now with increasing failure by banks to exhaust the forex offers on the wholesale forex auction system, it is beginning to get me a bit worried as this may mean over tightening.

“However, the enquiries for voluntary liquidations by holders of forex gives us confidence that tightening will result in a self-sustaining interbank market. This is where we want the monetary authorities to go.

“The digital gold token solution should be finalised soon to take care of domestic transactions and value preservation, where the Zimbabwe dollar is regarded as an unviable alternative to the US dollar.” Herald


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