LIVINGSTONE MARUFU
Captains of the industry and analysts have called for the shutdown of the forex auction system saying the meagre US$5m cap on weekly foreign currency allocation was only fit for Small to Medium Enterprises (SMEs) and admission on the need to dollarise.
These comments came after Finance and Economic Development Minister Mthuli Ncube said a maximum of US$5m will be allocated weekly and will be paid within 24 hours.
Analysts said the ‘meagre’ limit highlighted the economy had dollarised and left no need for the system introduced in 2020 to give a fair value of the ZWL$ against the US$.
Economist Gift Mugano has called for the shutting down of the foreign currency auction system as it failed to serve its purpose.
“The limiting of the auction allocation to a maximum of US$5m per week confirms that the system has failed and is no longer useful to the industry which it was formed to help.
“I think they should just shut it down,” he added.
“In view of the fact that the auction system has been reduced to US$5m per week, isn’t this clear evidence that the economy has dollarized?”
Confederation of Zimbabwe Industries (CZI) president Kurai Matsheza told Business Times that very few companies can now benefit from the forex auction system and many companies can now source through their means.
“The US$5m weekly allocation can mainly help the SMEs and very few companies as the amount is inadequate to service the industry’s foreign currency requirements. By this development, most companies will source forex through their means,” Matsheza said.
Captains of the industry and multiple analysts argued that the auction system failed to bring desired results and become a cheap US$ accrual hub.
This was against the true Dutch system, which promotes competition among bidders.
The Reserve Bank of Zimbabwe (RBZ) in August last year announced that it resorted to using the auction system as an allocative platform rather than an auction system.
Ncube said the foreign currency platform would be revamped to reduce the widening gap between the official exchange rate and the parallel market exchange rate.
The business said the auction system has failed to extricate the industry from forex challenges.
Instead, they said, it has become a forex rationing mechanism.
Its failure has forced the government to adopt the interbank market, meaning the country now has three forex markets namely the auction, interbank and parallel market.
The Zimbabwe dollar was this week trading at ZWL$2577.05:US$1 at the auction system and above ZWL$4000: US$1 in the parallel market.
“This means the interbank rate has not achieved the desired results hence they are pushing for the perfection of the auction system once again,” an analyst who commented on condition of anonymity told this publication.
Mugano said the official and the parallel market rates will only converge if the authorities follow the real Dutch auction system where one takes the highest bidder price as the benchmark for the auction rather than taking the average price as done by the RBZ.
He said businesses would continue to use the parallel market to benchmark prices.
Businesses said the interbank rate system has been a disaster as it failed to act as an exchange rate discovery platform.
