‘Abandon forex auction’

…As FIU tightens screws on forex dealers

October 14, 2021

LIVINGSTONE MARUFU

 

Captains of industry this week pressured the Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya  to consider abandoning the ‘inefficient’ Dutch foreign currency auction system or do an overhaul of the system.

Local businesses also suggested the return of the interbank system to allocate foreign currency in the economy.

The call by business comes after the central bank and the Ministry of Finance and Economic Development called for a crisis meeting with captains of industry on Monday this week following an exchange rate crisis that has pushed prices of goods and services over the last few weeks.

Business Times can report that at the crisis meeting, captains of industry were candid.

They demanded that the central bank discard the  foreign currency auction system and return to the interbank system or do a total overhaul of the system to make it more efficient.

“In our meeting with the RBZ (on Monday this week) we called for the total removal of the foreign currency auction system and return to the interbank system or do an overhaul of the system,”  the Zimbabwe National Chamber of Commerce chief executive officer, Christopher Mugaga, said.

“The auction rate (ZWL$90:US$1) is not in touch with reality and as long as the RBZ keeps rates like that, backlogs won’t be cleared. We need realistic approaches to this.”

Confederation of Zimbabwe Industries (CZI) president, Kurai Matsheza, said industry will push the central bank until  the changes on the auction have been achieved.“Bad policy blurs the lines and

results in criminal activity co-mingling with legitimate business survival decisions in a forex mispriced system,” Matsheza said.

He added: “A heavy-handed approach to a problem that has its cause squarely in sub-optimal policy implementation creating arbitrage opportunities would be unsettling to the markets. It is our considered view that the measures agreed at the consultative dialogue should be given time to take effect as they are going to most likely cause an adjustment of behaviours in accordance with their efficacy on the challenges being addressed. Essentially, at the centre of this is a policy correction, when policies fail we should not arrest people, we should correct the policies for efficacy.”

Matsheza said  a true Dutch auction would perform the function of price discovery and pave the way for a more liberal exchange rate regime.

Monday’s no-holds meeting comes at a time when the local currency has been taking a battering on the parallel market which has pushed up the prices of goods and services  over the last few weeks.

Premiums on the black market reached ZWL$200:US$1, a move that prompted the central bank to blacklist alleged foreign currency abusers, believed to be causing the crisis.

The central bank is battling to settle bids  from the auction system, taking at least two months, a move captains of industry said has crippled operations.

They said they are forced to source foreign currency from the black market where premiums are punitive.

A number of executives have been arrested for charging more than the ruling rate.

But the CZI said the arrest of business leaders will only serve to destabilise the relationship between business and authorities as the two need to work together to re-industrialise the economy in pursuit of Vision 2030.

Matsheza said fear will drive business decision making reminiscent of the 2007  crisis and arrests  which resulted in shortages, as companies could not find any other ways of funding their forex requirements legitimately.

He said the arrests will also cause unnecessary panic in the market and erode consumer confidence in government policies.

Matsheza also said continuous dialogue is necessary between business representatives, the central bank and the authorities to find an amicable way out of the current foreign exchange challenge focusing on averting the imminent crisis while creating sustainable solutions to solve the long-standing currency issue as a way to boost economic growth.

The RBZ said banks should be committed to do due diligence on customers and refrained from participating in parallel market dealings.

RBZ governor John Mangudya said the bank will implement all the points made to achieve sanity in the economy.

The volatility of the parallel market exchange rates has seen the Financial Intelligence Unit (FIU) stepping in  noting the increasing abuse of the debit cards linked to Zimbabwean denominated bank accounts.

FIU said it has been identified card holders approach customers who intend to purchase goods or services in forex and offer the use of their cards in return for forex at an agreed rate. In a statement, FIU director Oliver Chiperesa said banks are expected to identify and report these transaction as suspicious and in case of repeated abuse, close the accounts  and report same to the FIU in the course of discharging Anti-Money Laundering/Combating the Financing of Terrorism obligations.

 

“Banks should implement robust automated transaction monitoring mechanisms to identify debit cards and linked bank accounts that are being used frequently and in a pattern that raises suspicion that the customer is abusing the card to pay goods and services on behalf of third parties,” Chiperesa said.

“Having identified such transactions and accounts, the bank must carry out further analysis to establish the source of funding into the accounts as well as the purpose and legitimacy of the payments.”

He said banks must file a suspicious transaction report to the FIU if it determines that the account is being abused for third party payments.

He said banks should consider taking immediate steps to withdraw banking services in respect of offending customers and in appropriate cases, the bank may, in its discretion, issue a final warning to a customer, before making a final decision to close the account. Banks are being required to configure their automated transaction monitoring systems specifically to detect the abuse. The financial institutions are also required to report to the FIU by no later than October 18 2021 on the specific measures implemented.

Thereafter,  they are supposed to report any suspicious transactions to the FIU as well as details of any accounts that would have closed as a result of this exercise, with seven days of closure. The country’s largest commercial bank by deposits, CBZ Bank, warned that staff members and clients  involved in parallel market activities will be blacklisted and barred from accessing financial services for two years.

“In a bid to curb fuelling of forex rate distortions and preserve the group’s image, CBZ shall fulfill its obligations of such clients and report them to FIU. Additionally, all staff members are advised to desist from participating in illegal forex transactions either on behalf of clients, either on behalf of clients or for their own personal benefit,” the bank said.

The bank will help to identify all those who advertise parallel forex transactions using its name on social media, it said.

 

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