Opaque System Weighs Down Inter-Bank Market
Foreign currency earners are shunning the inter-bank foreign exchange market owing to an opaque functioning system of its trading activities with indications that authorities are tempering with the bidding and price identification of the exchange rate, 263ChatBusiness has learnt.
This is contrary to Central Bank assurances that the process will be liberal, on a willing buyer-willing seller basis.
Speaking at Business Economic Empowerment Forum on currency reforms this morning, Confederation of Zimbabwe Industries (CZI) president Sifelani Jabangwe said the inter-bank market was reeling from low confidence from market participants.
“What we have been hearing is that some banks have indicated that they have been told not to move the rate above certain thresholds whereas other authorities are saying the rate on the market is on a willing buyer, willing seller basis,” Jabangwe said.
As high expectations that accompanied the introduction of the interbank market are fast waning, authorities have done little to rescue the situation as trading activities on this platform remain clouded in ambiguity.
The Central Bank has not publicized the quantum of trading activities on the market as companies attest to shortage of currency to bid on this market.
The RTGS currency has however plunged on the interbank market, currently trading at US$ 1 as to RTGS$ 3.30 and the Central Bank Governor Dr John Mangudya has already spelt that the rate is not to be tempered with but allow market forces to determine it, but its lack of transparency worries potential market players the most.
“The interbank market should be very transparent, what are the bids and offers on that particular market so that we know because the key component is that there should be efficient allocation. The other factor is what is the price identification in terms of what is the value of exchange rate between RTGS and USD because we don’t want a few thousand dollars to determine the rate. In other words, there would be outliers, we would prefer a situation whereby the rate is determined by the rate of which the bulk of transactions are transacted so that then it determines the actual rate,” added Jabangwe.
While business is shunning the interbank market, the parallel market or charging consumers in foreign currency remain the only options for local manufacturers to source foreign currency for importation of raw materials and observers fear this together with speculative market tendencies will continue pilling pressure of inflation.
“Our pricing has also been due to speculation. There is speculation behaviour and also arbitrage that has also set in because in an environment were key fundamentals like in our case we have been largely dependent in foreign currency for importation of raw materials. These raw materials should be coming from our land. So the moment we domesticate sourcing of raw materials we are going to save foreign currency,” said Confederation of Zimbabwe Retailers Association chair, Denford Mutashu.
Analysts say while the tobacco selling season was expected to bring much foreign currency liquidity on the market, an opaque interbank market and deterrent government policies such as the foreign currency retention scheme for exporters continue to discourage foreign currency earners from doing business on the formal banking systems.