Industry demands free forex market

THE recently-launched interbank market is not operating on a free market concept resulting in subdued trading and companies failing to access desperately-needed foreign currency, the Confederation of Zimbabwe Industries (CZI) Economists Round Table has said.
This comes as the official forex market — which debuted at 1:2,5 against the United States dollar — has been showing signs of improving.
“The roundtable noted the need for the interbank market to be market-based to ensure transparency and accountability in its operations,” said CZI.
“It was also noted, however, that the interbank market was not operating on a free market based concept resulting in less than expected trading and failure by most of the productive sectors to access the foreign currency requirements for optimal business operations,” CZI said.
The CZI Economists Roundtable said it had been discussing with other key stakeholders, including banks, regarding the operations of the interbank foreign exchange market.
While the creation of this platform has been applauded, controlled rates differed from the parallel market which has been outpacing the official market.
This has presented challenges to the RBZ governor John Mangudya’s plan of striking an “equilibrium” between the two rates.
“We are in a transition towards a sustainable equilibrium of the interbank forex market. Rome was not built in a day,” Mangudya said of the launch of the interbank forex market.
The local currency, the RTGS dollar, has lost about 18 percent of its value since the inter-bank foreign currency market started in February 22, two days after the announcement of the Monetary Policy Statement by Mangudya.
While the RTGS dollar was trading at 1:2,5 to the greenback on the official interbank platform when it was introduced, on the black market, it was as high as 1:3,6. It has now fallen to 1:2,9 on the formal market and as high as 4,2 on the parallel market.
“It was noted that any delays to move towards market-based interbank will result in traders seeking alternative ways of getting the foreign currency such as resorting to the parallel market. Already the rate on the parallel market is creeping upwards,” said CZI.
“However, the view is that fear of a much higher rate than 1:4 is unfounded as buyers are not willing to buy foreign currency at that high rate, and moreover, there is not enough RTGS dollars to sustain such a rate,” CZI said.
The parallel market is mainly comprised of desperate buyers and few sellers.
Zimbabwe has not had a functioning interbank market system for about 11 years.
“The meeting also noted that industry needs to be honest about the rate they are expecting to be obtaining on the interbank market. Industry has been saying that it is comfortable with the 2,5. However, this rate benefits them when buying foreign currency but there will be no sellers to trade their foreign currency at that rate,” CZI said.
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