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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