Liberalise foreign exchange market, RBZ told

The Reserve Bank of Zimbabwe (RBZ) should fully liberalise the foreign exchange market and allow market forces determined the exchange rate, multiple economists and business leaders have said.

The Zimbabwe National Chamber of Commerce (ZNCC) president Tapiwa Karoro told Business Times, a market leader in business, financial and economic reportage, that it would be the only way for the system to become a price discovery mechanism.

“There is a need for a consistent implementation of a market-determined exchange rate system that will provide a more predictable and stable economic environment, reducing speculative market behaviours. The central bank should improve the availability and accessibility of foreign currency at banks for importers. The RBZ should also ensure transparent and efficient processes for businesses to access foreign currency is crucial for import transactions and economic stability,” Karoro said.

Sekai Kuvarika, the CEO of the largest business lobby group in the country, Confederation of Zimbabwe Industries, asserted that the managed currency rate regime had placed the companies in a precarious position.

“We have a badly misaligned exchange rate system in the country. What we need is stability and what we need is an efficient price discovery mechanism and well-functioning forex accessing platform,” Kuvarika said.

She added: “…We need the forex to be correctly priced so that everyone benefits from it and that’s our constant position up to today.”

Economist Dr Prosper Chitambara concurred.

“The depreciation of the local currency is pointing to the rigidity of the interbank system. There is a need to fully liberalise the interbank bank system. There is a huge mismatch between the demand for forex as there are so many willing buyers and very few willing sellers.

This makes forex scarce and this points to some distortions on the interbank systems which is causing the platform not  to be fully reflective of that market dynamic forces of demand and supply.

The exchange rate seems like it is being managed and is not allowed to freely float. Liberalise the interbank to allow the forces to be fully reflected in the exchange rate,” Dr Chitambara told Business Times yesterday.

Another economist Professor Gift Mugano  weighed in saying:  “The governor of the RBZ must liberalise the exchange rate as there is clear evidence that the willing buyer willing seller is not  working because the exchange rate is commanded by the central  bank.

“He must float the exchange rate to become a discovery mechanism in the market so that players can freely trade forex.

I don’t see the rationale of him [Dr JohnMushayavanhu,the governor of the RBZ] running a controlled exchange rate in real practice.”

He continued: “It does matter how he tries to defend the Willing Buyer, Willing Seller (WBWS) system as banks are not giving  bidding companies forex. What is that?

“We are fooling ourselves.

“Dr Mushayavanhu said all the companies with genuine need for forex should go to the bank and get it, he must walk the talk on that.

“We don’t want to be told that reserves have increased from US$280m to US$350m, they mean nothing if we hear that we have a backlog of the same invoices,” he added.

Economic analyst, Victor Boroma, said the RBZ’s flouting of the WBWS system has left the business on the edge.

“It’s imperative for banks to be the matchmakers for the exchange rate and an efficient exchange rate platform.

“The state of affairs in the market shows that the  official market is controlled  as banks cannot match the sellers to the buyers. We are convinced that the exchange rate is controlled by the apex bank,” Boroma said.

He added: “We have seen that the prices of the basic commodities are going up due to the disparities between the official rate and the parallel market rate as there is a high demand for forex on the parallel market hence the change in exchange rates,”he said.