- “We are going to make an announcement in the next coming few weeks, in fact it should be before the end of November. We want to attend to issues of transparency. We don’t want a massaged interbank. We are working on enhancing the interbank market,” Masendu disclosed at the BDO Chartered Accountants business meeting held in the capital.
By Business Times
The government is set to overhaul the country’s inefficient interbank foreign exchange market, as authorities push for the harmonisation of the exchange rate regime.
The Reserve Bank of Zimbabwe (RBZ) has, for the first time since the inception of the interbank market in February this year, admitted that there was serious abuse of the system by the banks.
The interbank foreign exchange system effectively devalued the local currency which was initially pegged at par with the United States dollar but the model was ditched in February.
The foreign exchange policy, however, has failed to deal with the economic crisis. Zimbabwe is still gripped by serious shortage of foreign currency. Apparently, businesses have long been calling for the overhaul of the market claiming there was abuse in the system.
But, foreign currency has not been available forcing them to turn to the alternative market where they pay high premium. In turn, they pass the cost to the long-suffering consumers.
The RBZ director of exchange control, Farai Masendu, disclosed the latest development to Business Times last week saying there was a lot of ‘massaging’ in the system at the moment and there was no transparency.
The official rate on the market as at close of business yesterday the interbank rate stood at 16:1 against the black market rate of as much as 22:1 against the greenback. But some banks, according to the RBZ, were selling foreign currency at ZWL$30 for US$1, which was clearly an abuse of the system.
Now, the RBZ wants to trail every deal that is carried out at the interbank market.
“We are going to make an announcement in the next coming few weeks, in fact it should be before the end of November. We want to attend to issues of transparency. We don’t want a massaged interbank. We are working on enhancing the interbank market,” Masendu disclosed at the BDO Chartered Accountants business meeting held in the capital.
“What we are basically doing is that the rates that are coming through banks are varied. We now want them to distribute foreign exchange in such a manner that we are able to track all the deals and make sure that there is no connivance where forex is sold at 30:1 against the United States dollar. So, we want to track all the deals because there is also an element of abuse in the banks system itself.”
He added: “The new system will have two legs. The first leg is to link between the banks and the Reserve Bank of Zimbabwe and the second leg is the link between the bank with customers. So, we want a complete cycle to make sure there is no abuse of the system in the banks.”
Finance minister Mthuli Ncube indicated that the new interbank platform will be modelled the Reuters way.
“We are enhancing the interbank market. The new model, which will be like the Reuters one will be launched before the end of November,” Ncube told Business Times on the sidelines of a post Cabinet briefing last week.
Business Times can report that several banks have been shunning the system – leaving companies to turn to the parallel market where rates are much higher. Activity on the platform has been low with funding apparently dwindling since inception. From February 22,2019, to October 11,2019, cumulative interbank purchases amounted to a lowly US$173 million, while total sales amounted to US$165 million.
With the new interbank market, the government expected it to provide significant positive effects on the economy and domestic production, which is currently very low. Zimbabwe’s economy has been on a serious downturn in the past two years – being ravaged by hyperinflation, cash shortages, fuel and electricity shortages.
Exporters or those that generate foreign currency are not motivated to trade at the interbank market because of the unattractiveness of the rate, which is done secretly on the willing buyer, willing seller basis, hence supply is constrained. In effect buyers and sellers of foreign currency are not willing to meet at the interbank market because of the prevailing rates being quoted.
Now, the central bank wants to change the system to promote transparency. Also, the RBZ, is to blame for the acute shortages of foreign currency on the interbank market because of its surrender requirements.
The RBZ is currently taking almost 50% of the available foreign currency, hence impacting negatively volumes of foreign currency liquidity available to trade at the interbank market. This leaves the rest of the productive sector of the economy competing for the remaining 50% of foreign currency.
Analysts who spoke to Business Times this week highlighted that an overhaul of the interbank market is the best way forward to ensure market credibility.