BUSINESS REPORTER
The Reserve Bank of Zimbabwe (RBZ) says the foreign currency auction system is here to stay amid pressure from industry to suspend the platform until the allotment backlog has been cleared.
The Confederation of Zimbabwe Industries (CZI) stirred up the hornet’s nest on Friday after recommending that the auction system be suspended as it has failed to settle bids with a backlog of over 10 weeks, a signal that it was auctioning the money that was not there.
It also wants an independent supervision of the platform along with the RBZ which can include a Chartered Accountancy firm and a professional registered auctioneer, among a raft of measures to address the rapid trust injection required to stabilise the local currency.
In a statement Saturday, RBZ governor John Mangudya said the assertions by the CZI were “unfortunate and uncalled for” as they have the potential of destabilising financial markets and economic stability.
“The foreign exchange auction system remains in place and will not be suspended as doing so will cause shortages of goods in the market and abet inflation,” he said.
“All foreign exchange accounts are safe and the Bank has no reason or appetite to “raid” the accounts as alleged in the CZI paper.”
Mangudya said the bank has noted with serious concern that CZI has published the paper without engaging it to establish the veracity of the rumours that motivated the paper.
He accused the industry’s lobby group of creating a “negative impression that has the effect of stocking market confusion and inflation”.
Zimbabwe is grappling a foreign currency squeeze with the forex auction struggling to supply the market. The allotment backlogs have meant that companies have to source the greenback on the parallel market thereby pushing up the exchange rate.
Critics say the auction has failed to become a price discovery mechanism as its rates trails the alternative market thereby creating room for rent seeking behaviour.
The CZI said reports of companies having bids being prorated yet they would have submitted high-rate bids are also an indication the Dutch auction rules which state that the highest bidders get all their allotments was flouted.
“The result of the above is that we lost the near convergence position that the auction had achieved in the beginning and trust was also lost especially after several promises of clearing the backlog and this is to companies that still trying to find solutions to legacy debt of yesteryear,” CZI said.
It called for a balanced approach to bring back the local currency from the brink of rejection that it faces now in the face of exchange rate instability and increasing inflation. It called the government not to prematurely introduce a mono-currency as the “consequences of such are known from the recent past”.
Mangudya said the government and the bank were committed to an orderly de-dollarisation process, and hence it is “false that a mono-currency system is now in place”.
The industrialists’ body said there is need to restore trust and credibility of the ZWL by ensuring it is the preferred medium of exchange and a credible store of value.
It said there is also need to liberalise the forex market either through immediate reform of the auction to become a true Dutch Auction System in both principle and practice or creating a separate interbank market that has the latitude to discover price or launching a ZSE forex trading counter.
It wants authorities to immediately embark on the mobilisation of foreign reserves to back the local currency before retiring the multi-currency regime.
