LIVINGSTONE MARUFU
ZIMBABWE’s interbank foreign exchange market has traded US$740 million in the first six months since its establishment in February as the monetary authorities move to improve its functionality and make foreign currency easily accessible.
Reserve Bank of Zimbabwe governor John Mangudya told Business Times that the promulgation of SI142 of 2019 encouraged more people to trade forex formally on the interbank market. This comes after government outlawed the use of multi-currencies and made the Zimbabwe the sole legal tender.
“The interbank has managed to trade US$740 million from February 22 to mid-July with high volumes coming from fuel dealers and the manufacturing sector which requires a great deal of forex on a weekly basis. This has seen a reduction in the trades on the parallel market with more people selling their foreign currency in formal channels,” Mangudya said.
“The fact that small businesses and individuals are queuing up to trade their foreign currency officially is a reflection that people now believe in the interbank system and that diaspora money is now coming through the formal channels.”
Zimbabwe needs around US$400 million monthly for imports and other functions but experts believe less than US$200 million is circulating in the economy causing the forex shortages to persist.
The decision to ban the multi-currency on June 24 this year had been necessitated by a quickening informal “re-dollarisation” of the economy and to contain a restive civil
service who were now demanding salaries in US dollars.
Economic analysts say broader economic reforms which treasury claimed to have been completed have not been addressed to justify the return of the local unit.
An economist who preferred anonymity said: “When introducing the new currency, government said more forex reserves were going to be built, more foreign currency will be in the formal economy. We are a month down the line but the situation has deteriorated further with fuel prices increasing twice or thrice within a month and fuel queues meandering down the streets.”
“Confidence issues will also be a problem as government said they were going to introduce new currency when they have forex reserves for six months and import cover of at least three months. None of the fundamentals were met.
“Government just rushed to reintroduce new currency to manage twitchy civil servants who were demanding salaries in US dollars.”
Economist Persistence Gwanyanya said the interbank system is the way to go but more needs to be done on liberalisation of the system.
“The forex interbank platform has done well to allow many companies to trade forex freely on the system but what is needed is to leave those banks which have the higher rates to do as they wish to allow more forex in the formal system,” Gwanyanya said.
“This will encourage more companies and individuals to trade freely and more confidence will be built based on the belief that the system is not manipulated.”
