The foreign exchange auction system, introduced in June by the central bank, has been credited with stabilising the exchange rate.
In an update on Tuesday, RBZ governor John Mangudya said some banks were breaching one of the foreign exchange auction rules which mandates banks to ensure that applicants have enough local currency in their accounts to finance their bids.
“However, it has come to the attention of RBZ that some banks are not paying particular attention to this requirement and have instead been extending overdraft facilities to finance their customers’ bids,” Mangudya said.
“In line with the Bank’s monetary targeting framework designed to control the growth of money supply, funding of bids through overdrafts and advances is discouraged. Where absolutely necessary, bank lending should be limited to a maximum of 50% of a bid.”
He said under these exceptional circumstances, bidders would be required to have in their accounts a minimum balance equivalent to 50% to cover their bids adding that the bank’s Exchange Control Division and the Financial Intelligence Unit would continuously monitor users of foreign exchange in the economy in order to deal with the malpractices.
This exercise has resulted in 12 entities being banned from participating in the foreign exchange auction while 62 entities are under investigation, Mangudya said.
Mangudya said the banned entities’ respective bankers have been warned against breach of the foreign exchange auction rules.
RBZ is confident of the forex system and will continue improving the system to ensure companies procure forex from the formal system which can be controlled and supervised.
“The success has been achieved through market price discovery of the exchange rate and provision of a dependable foreign exchange market. Since the inception of the foreign exchange auction system, there has been a significant increase in both the number of bids and the value thereof from just under 100 bids valued at US$11m at the first auction to the current levels of over 500 bids valued at around US$40m at both the main and SME auctions,” Mangudya said.
RBZ released top 100 beneficiaries of the foreign exchange auction system since inception with Cangrow Trading, Stanbic Investor Services (Nominees), Blue Ribbon, Surface Wilmar National Foods and Varun Beverages as the beneficiaries.
The top 100 beneficiaries accounted for 45% (US$290.9m) of the forex traded on the auction.
Other companies and individuals accounted for 55% (US$$348.5m). Government recently said it has the resources to sustain the auction.
