LIVINGSTONE MARUFU
Companies that trade in hard currency should be barred from participating on the forex auction system to reduce pressure on the platform, analysts have said.
A number of companies such as fuel companies, use free funds to bring in products.
And they charge in hard currency, especially the US$.
Those that sell in forex, economists said, should not be allowed to participate at the foreign currency auction system.
There are others who are allotted foreign currency at the auction system but are selling their products in hard currency.
These should be suspended and punished for abusing the foreign currency obtained from the central bank’s foreign currency auction system.
“The auction system has created some imbalances and created arbitrage opportunities,” an economist who preferred anonymity told Business Times this week.
He added: “Questions should be asked why they are coming to the auction as one is generating forex?
“Therefore, there is a huge double-dipping which should not be allowed. This creates unnecessary demand for the auction.
“Players should use their forex to import requirements rather than to queue up on the auction to create artificial demand that could be there. These are some of the things that we may need to realign.
(It’s) rent seeking behaviour. They are exploiting arbitrage opportunities since certain policies were not adjusted in tandem with changing environment.”
This week, the Reserve Bank of Zimbabwe banned 30 individuals from accessing financial services for two years and forwarded the names to the law enforcement agencies to prosecute them as the central bank moves to tighten the exchange control rules.
RBZ governor John Mangudya said the individuals had been engaging in illicit financial transactions through mobile and other social media platforms.
He said the Financial Intelligence Unit (FIU) has identified individuals as abusing mobile telecommunications services and other social media platforms to promote and facilitate illegal foreign exchange transactions and money-laundering activities.
“The FIU has instructed banks, money operators and other financial service providers to identify and freeze any accounts operated by these individuals and further, to bar them from accessing financial services for a period of two years with immediate effect,” Mangudya said.
But the economists describe the occurrence as a non-event as they say the country moved the same route in June when RBZ named and shamed 18 entities but nothing happened and changed.
Economist Gift Mugano said banning small players is not effective as there is no moral value loss in it as the huge disparities between the official and unofficial create huge arbitrage opportunities.
“Look at the auction system, we are hearing that it is taking up to 10 weeks or something close to three months. Even if you name and shame me so what when there is a big backlog like that,” Mugano said.
“The central bank should make effort to clear the backlog and close the gap between the two exchange rates and as long as those issues are not addressed you can even name and shame the angels and the situation on the ground will not change.”
The foreign currency auction system was introduced in June last year. In the period June last year to August 2021, the auction system had allotted US$1,967,576,694 with the bulk (US$1,733,751,014) coming from the main auction and the remainder coming from the SMEs auction. Mangudya said the bulk of the allotted funds (60%) has gone towards payment for raw materials (US$794.7m) and machinery and equipment (US$382.5m) with the remaining 40% going towards payment for consumables, pharmaceuticals and other critical needs of the economy.
