Experts laud liberalisation of FX market

RYAN CHIGOCHE

The move by the Reserve Bank of Zimbabwe (RBZ) to liberalise the foreign exchange market by allowing banks to conduct foreign exchange transactions of up US$1 000 in which individuals and corporates can sell foreign currency to banks will lure more forex into the formal market, experts have said.

Individuals with free funds and entities/corporations holding foreign exchange in their foreign currency accounts (after meeting the statutory surrender requirements) can sell foreign currency to banks on a willing-buyer willing-seller basis.

“The willing-buyer-willing-seller arrangement is a step in the right direction which the market has been advocating for a long time. It appears like the RBZ is using this arrangement as a pilot to see how the market will respond and if possible, fine tune it before eventually adopting the approach for the auction system,” an economist with a leading commercial bank told Business Times.

“The new arrangement will award a fair value to those suppliers of forex who have suffered for a long time because of the soft exchange rate peg that has been in existence for a long time. This is expected to incentivise holders of FX to offload the FX via the formal banking channels without assuming significant risk of losing their money to unscrupulous dealers.”

Economist Moses Chundu commended the move but added that the liberalisation was only partial advocating the disbanding of the auction system as “nothing justifies its existence”.

“Allowing some limited trades in forex on the official market on a willing buyer willing seller’s basis is a move in the right direction. It amounts to partial liberalisation. It’s a sign that the auction system is under pressure and in the long run we may need to face the inevitable and abandon the auction system which is distortionary and creates opportunities for arbitrage and rent seeking behaviour.

“The system is clearly subject to abuse and for most services it appears there is near full benchmarking with the alternative market rates in the pricing of goods and services hence little justification for its continued existence in the name of stabilising prices,” Chundu said.

Confederation of Zimbabwe Industries chief economist Cornelius Dube said the liberalisation of the foreign exchange market was a step in the right direction.

“[While] it’s not enough for industry, it is a policy that is being introduced to see how the market will respond because a lot of stakeholders including CZI have been calling for market determined exchange rate. The fact that it’s going to operate on a free market basis willing seller willing buyer is also going to determine the extent to which it will come up with a proper interbank determined rate which industry as well as the mining sector  who are a leading generator of foreign currency will be prepared to sell their currency,” Dube said.