The interbank forex rate will shoot through the roof, can the gvt/RBZ stomach it?

Tinashe Nyahasha Avatar
black market, ZIMRA rate forex

This coming Tuesday the 23rd of June 2020, the new formal trading of foreign currency via an inter-bank auction will kick off. This is the third time Zimbabwe is introducing such a market. In fact it’s just been 3 months since the Reserve Bank of Zimbabwe suspended the interbank forex market it had introduced a year prior.

As the auction resumes, the rules have changed slightly. The central bank says the auction will be running on an automated electronic system which assumes non interference in the process to manipulate the exchange rate. This has to be seen though.

If free, then…

If indeed the auction will be free from attempts to manipulate the exchange rate and this is a big if, then the most probable result is that the exchange rate on the official market will go bezek.

Currently the official exchange rate has been arbitrarily set at 1:25 (USD to local currency). This makes the local currency almost four times stronger than the parallel market estimates it to be. The parallel market is where the real market dynamics have played out because like I said the official exchange rate is arbitrary.

The same players plying their game on the parallel market today are really the same ones that are going to be participating on the interbank market so the logical deduction is that if the official auction is going to be free then it will probably almost mirror the current parallel market. Of course the two will never be truly equal but a competitive official exchange rate stabilises the parallel market.

Big businesses are starved of forex

A lot of big businesses are struggling to acquire the forex they need for key input importation. Some of those businesses are sitting on bucketloads of local currency which is essentially worthless to them. They will not hesitate to bid highly for forex pushing the interbank exchange rate towards what we are seeing on the parallel market today. Telecom operators are a classic example of such businesses.

Of course a lot of these big businesses will also pretend to need forex for imports when they will only want to keep their money in a more stable form. It will be up to their creativity how they will manage the feat but I am most certain they will try and almost as certain that they will succeed.

The other guys and gals

Politically connected folks will also put pressure on the local currency devaluing it. Somehow those scoundrels always find their way onto hard currency. The RBZ governor said:

Allotment of foreign currency to winning bids will be based on the Import Priority List

In Zimbabwe, luxury vehicle imports by politicians, their offspring, their connections and their offspring’s connections almost always qualify to the ‘Import Priority List,’ the very top of the list.

Can the gvt stomach it?

The real question is how far the government and its principal agent in these matters, the RBZ are willing to go. A devalued currency means salary reviews for civil servants have to be quite substantial. Inflation will sour to an even higher rate than where it’s at right now because pricing in Zimbabwe is inextricably linked to the exchange rate.

This trend can probably normalise if given enough space and time to play out but that’s the problem. Zimbabwe doesn’t have stable politics whether or not inflation is wreaking havoc to livelihoods. When that starts happening then politicians will do what politicians the world over know to do: they’ll kick the can down the road.

It’s difficult for me to imagine the government sitting back watching the exchange rate get to 1:100 overnight without ‘intervening’ and claiming there are saboteurs at work.

I am therefore left with pessimism all round. If the interbank market works then it will mean crazy erosion of people’s incomes. If this is stopped then we will be back into the loop we have been for years.

My sincere hope is that I am totally wrong and that I am missing some obvious things. If I am, I am happy to hear the optimistic view to all this.


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  1. Cool Head

    The long and short of it is we have clearly gone a full circle, after upteenth attempts to stabilise the currency… The pretenders at RBZ and Ministry of Finance seem not to learn anything at all, while lives and livelihoods are destroyed in the process…

    Short of adopting another foreign currency fixed to the USD, such as the Yuan, (which is basically adopting the USD without its negative consequences), we are back to 2008, and all it’s unnecessary social, economic and political upheavals…

    1. Tinashe Nyahasha

      Interesting suggestion there. Adopting the Yuan. Perhaps the Rand is more realistic? But ego will get in the way of that one though

      1. Gggg

        The market doesn’t trust the yuan it’s better to fix some outstanding issues and play with the Euro. Europe is already looking for ways to recover and we present good opportunities

        1. Tinashe Nyahasha

          Isn’t the Euro too strong? We will still have a competitive problem in terms of exports in the region won’t we?

  2. Always off Topic

    It is obvious that the new auction is an attempt to lure those with forex to the table. It will never be free or any better than the alternative. Just think about it, how many hoops do you have to go through
    to buy forex if you need it on official exchange as opposed to the alternative market. And with WhatsApp these days… RBZ and Prof Ncube need to bite the bullet and admit their experiment has failed.
    The other thing to consider, since Zim economy is re-dollarising, business and everyone else wants forex , my point being there is no demand for local currency since forex can be used for daily expenditure. Specific exchange rate is irrelevant now because whole economy has shifted to multicurrency/USD again , it only matters to those who are unfortunate enough to be engaged in forex denominated dealings with government.
    And they call themselves technocrats, but most of their ideas are half baked and short sighted.

    1. Tinashe Nyahasha

      Yes as more and more transactions become denominated in USD, who will want local currency? Takes us back to 2008/2009 when some new notes (the 10 trillion and 100 trillion) were just rejected by everyone in concert.

      Perhaps demand will be forced through the mandatory exchange of export receipts for local currency

      Let’s watch this one closely.

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