Zimbabwe Central Bank warns rogue elements operating in black market

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RESERVE Bank of Zimbabwe (RBZ) has warned rogue elements involved in illegal foreign exchange trading on the parallel market to desist from the destablising habit of disseminating messages that fuel local currency volatility through social media platforms, which creates  panic and despondency in members of the public.

The monetary authorities threatened stern by unspecified punitive measures against culprits fuelling parallel market activities that have a serious negative impact on the economy.

This comes on the back of an unrelenting spike in the parallel exchange market witnessed particularly at the end of September and into October, which pushed the parallel market foreign exchange rate to levels that were almost double the RBZ’s official exchange rate, which at the time hovered between $86-$90 to US$1.

While addressing an officers’ lecture at the Rodgers Alfred Nikita Mangena Barracks, formerly Zimbabwe National Defence University (ZNDU) yesterday RBZ Governor, Dr John Mangudya said people were being constantly reminded of the hyperinflationary environment experienced in 2008, leading to a lack of confidence in the local currency among the general public.

He indicated that the panic was leading people to constantly and unnecessarily hunt for the US dollar, as an inflation hedge, compared to the preference for local currency.

“We have been trying to convince the public that colleagues’ let us use the local currency, we are not going back to 2008, but because of polarisation in this country, people now use social media to remind people that we are now going back to 2008.

“Whenever those messages are sent on social media it is not because of love they want to remind you of 2008 so that you panic and go to their market and buy foreign currency (for hedging)at an exorbitant rate.

“Whenever people have Zimbabwean dollars in their pockets they want to offload it and look for foreign currency. That is what is happening. We understand that people are afraid of the 2008 hyperinflationary environment because once bitten twice shy, and now they are always seeking for the US dollar,” said Dr Mangudya.

The central bank Governor highlighted that monetary authorities were not  “against the existence of a parallel exchange market” in the country, but the wayward behaviour being displayed by some rogue elements that were seeking premiums above an unacceptable 40 percent margin, which was a matter of concern to the financial system.

Dr Mangudya pointed out that countries that include Nigeria, Angola, Zambia, Ethiopia, and Malawi, among others across the world, made use of parallel markets that operate in a reasonable manner.

“We are not even against the parallel market, we are against the volatility found on the parallel exchange market because internationally, the best practice is that it should not exceed 40 percent of a premium between the official exchange rate and the parallel exchange rate, there is no country without a parallel market but it is about the variance, the premium between the official exchange rate,” said Dr Mangudya.

As part of measures to curb the discourteous behaviour in the foreign exchange market Dr Mangudya said the bank will continue to use its strategy of moral suasion, but if unsuccessful, it would take tougher measures.

“Over the past four weeks, we met the business community to tell them that currency instability is not good for anyone, for business and consumers alike, because as a business you cannot plan if the rate changes every day,” he said.

The RBZ Governor’s sentiments are in sync with calls by local business member bodies that the Government should devise strong mechanisms that bridge the confidence and trust gap in the economy to combat threats of the exchange rate to economic instability.

The business lobby groups are of the view that Government will find a rationale mechanism of providing the much-needed leadership to deal with threats of instability, the confidence and trust gap for improved national competitiveness

Despite endless efforts by the RBZ and the Ministry of Finance and Economic Development there lately has been a spike in the parallel market foreign currency exchange rate in the parallel market which in turn lead to high inflation levels.

RBZ set up the dutch auction system in June 2020 to cater to industry foreign currency requirements after many local companies had resorted to the parallel market to fulfil their foreign currency obligations.