THE continued consolidation of the Zimbabwean dollar gains on the official market-driven foreign currency auction platform has created huge demand for the local currency on the back of growing confidence levels as well as price stability.
The weekly foreign exchange auction system, which started in June this year, has ushered in a more predictable foreign exchange market that is conducive for sustainable economic development, economic experts have said.
Industry executives and traders have also lauded the platform, saying it has greatly assisted the productive sector in procurement of critical raw materials as well as taming price escalation.
This, coupled with tightening of money supply growth and the recent clampdown on illicit mobile money transactions, has effectively contained the speculative parallel market dealers.
The local dollar appears to have reached stability at US$1:$81.34 this week, having maintained a firming position in recent weeks from the highest level to date of $83,39 on August 25.
The Reserve Bank of Zimbabwe (RBZ)’s Monetary Policy Committee has said that it expects the resultant price stability to continue prevailing in the economy during the last quarter of the year mainly on account of the improved operating business environment brought about by the foreign exchange auction system. While foreign currency usage is permissible, the Zimbabwean dollar, in both cash and electronic form, is now highly sought after and seemingly in short supply instead of forex.
Businessman and member of the RBZ Monetary Policy Committee, Eddie Cross, confirmed the development and said the demand for the local dollar was a confirmation of the expanding market.
“The shortage of RTGs is a function of the market, the market is beginning to expand, people are increasing trading in local currency and as a result, shortages have surfaced. If we were to print money to cover the shortage it will be inflationary, so we are not going to do that,” said Cross.
“We have been deliberately restricting RTGs (electronic money) because historically that has been the main source of inflation in Zimbabwe. This tight money supply we are going to maintain it for the present time. If people want RTGs they have to either sale foreign currency in exchange for RTGs or earn for RTGs.
“The velocity of money is very considerable in Zimbabwe. We trade about $3 billion a day in RTGs. So, it’s not a question of not trading, we are trading.”
Cross said the country has had slight or zero inflation increase in the last two months and expectation was that stability would persist up to the end of the year. United Refineries Limited chief executive officer, Busisa Moyo, has also acknowledged that getting the local dollar was now a tough task. “Times change and experiences may differ though. I never thought as operators we would be hunting, cutting deals and discounting to get local currency (RTGS/ZWL),” he posted on his Twitter account.
Economist, Professor Gift Mugano, concurred that Zim-dollar was on high demand and lauded RBZ for containing money supply.
“The RBZ has done well in managing money supply. Their periodic update has shown that they are containing money supply. I think the Minister of Finance as well in his budget, as you saw in July, did not provide a supplementary budget in the mid-term budget review, and that has stabilised money supply growth,” he said.
“The economy fields are growing because we have a lot of activities going on. We have actually confronted the agricultural season and there is high demand for input supply. The other thing, which has happened is that the Central Bank has allowed all economic agents to use foreign currency in the market. So, that has formalised the availability of foreign currency as it was not allowed before.”
With 16 auctions having been conducted to date and a total amount of US$291 million having been allotted, the Apex Bank has also said it was pleased that the foreign exchange auction has managed to improve the much-needed availability of foreign exchange.
In the past the supply of foreign currency was from exports, diaspora domestic remittances and investment but now these streams are being supplemented by the domestic generation of foreign currency.
Illegal money changers who spoke to Business Chronicle on condition of anonymity in Bulawayo said they were experiencing scarcity of all forms of local money, which was weighing heavily on their business.
“We struggle to get RTGS and cash these days. Ecocash is now scarce and the biggest problem is the daily limit of $5 000. As I speak, I have finished mine and now have no float,” said the trader. Others said the going was tough mid month and only gets better on month ends.
“It’s always dry now until civil servants and others receive their pay. That’s the only time we get RTGs through Zipit as many would want to buy foreign currency. The other thing is that the difference between cash and EcoCash is now very small,” said another trader.
Some super markets are also tapping into exchange rate gains by offering higher rates than illegal money changers, cashing in on people who do not have change in forex. RBZ Governor, Dr John Mangudya, has said the bank will maintain a stranglehold on reserve money targeting policy framework to keep exchange rate stability and tame inflationary pressures.
He is on record saying the Apex Bank was now selling more foreign currency than it is buying from holders of the hard currency, which shows the forex auction system has capacity to whittle down the amount of local currency in circulation.
However, Prof Mugano says money supply containment might be short-lived should the Government opt to increase civil service wages in tandem with the cost of living, which is pegged at around $17 200 for a family of five, according to Zimstat.
Most workers earn far below that mark. Post Covid-19, the complete opening of borders is also likely to result in the country losing some foreign currency to imports, which will likely tilt the scales, experts say.
-Chronicle
