This is probably not news by now. The main probably with the Reserve Bank of Zimbabwe’s foreign currency auctions is that despite having attractively low rates against the US dollar participants struggle to get any foreign currency from the central bank. What we have secretly known for months has been confirmed again by the Confederation of Zimbabwe Industries (CZI).
The industry has a backlog of between four to six weeks. There has to be a way to clear it so that there is less pressure on the parallel market.
The danger of a backlog is that companies will go to the parallel market with high rates to acquire money as quickly as possible to compensate for the lost time on the auctionKurai Matsheza CZI president
A backlog of more than a month would not be ideal for most businesses let alone the cash strapped businesses that operate on our shoars. To prop themselves up most businesses are instead opting to go to the parallel market where the rate is as high as $240 ZWL per 1 USD. To counter against this and possible unpredictable future hikes in the rate on the black market most businesses are already demanding a rate of $250 ZWL when customers opt to pay using Swipe/RTGS/ZWL.
The black market supplies bulk of foreign currency
The RBZ’s position is that the black market only suppliers 10% of foreign currency needs and therefore should not be the basis of exchange rates. It’s not clear where they are getting that 10% figure. Tentative evidence suggests the RBZ’s own auction suppliers a meagre 30% of the country’s foreign currency needs with the remaining 70%. It’s a fact confirmed by industry operators in Zimbabwe. It’s not surprising that the official rate has failed to take hold outside( in some cases even inside) the government.
Given how much the black market is offering the backlog that the official auction is facing is likely to remain as long as their auction continues to utilise their Dutch system. The system is currently designed to keep the rate low rather than make the rate free-floating. There wouldn’t be a thriving black market if the rate was free as the RBZ governor and the Finance Minister claim.