Exchange rate stability, a myth, says Biti as ‘State of the Nation’ address fails to inspire

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HARARE – Deputy president of the Movement of Democratic Change-Alliance (MDC-A) Tendai Biti has disputed the credibility of the foreign currency auction system used by the Reserve Bank of Zimbabwe (RBZ) to determine the value of the Zimbabwe Dollar (ZWL) describing the process as “rigged,” 263Chat Business has learnt.

Biti was giving a State of the Economy report this afternoon when he questioned the role of the Central Bank in determining the actual value of the ZWL against the American dollar (USD) at the weekly auctions when instead it should be the market through its respective banks that determine the value.

“Only the Reserve Bank of Zimbabwe has been supplying foreign currency. So when you have got one supplier you cannot call that an auction. It’s a fixed exchange rate regime because he who controls supply lines also controls the value of the product and you will see that the price of the foreign currency has remained constantly at 80,” said Biti.

Weekly official figures reflect that the ZWL has been stable since the introduction of the foreign currency auction system around June this year with the local currency maintaining an average of ZWL$80 against the USD.

But the major concern around the valuation of the ZWL and the “surprise” stability has been that almost all regional currencies have been volatile given the COVID-19 disruptions on economic performances except for the ZWL.

Analysts worry that the exchange rate could be manipulated as its somewhat proves immune to local and external headwinds.

The South African Rand has been oscillating between 15 and 19 against the USD since January to date as a result of both local and international forces making it one of the hardest currencies to predict.

“From being among the best to the worst performers — and back again in a space of three days,” leading South African online publication, Businesslive described the Rand this year.

The same volatility has been witnessed with the Zambian Kwacha throughout the course of the year.

“South Africa is a US$ 400 billion economy. The Rand compared to the ZWL is fairly strong and it’s anchored around 15 to the USD but it has been very volatile because it’s not rigged, it’s an open market system. The reason why it (ZWL$) has no volatility is that it is a controlled exchange rate,” said Biti.

Biti’s remarks come at a time industry captains have also been calling on the independence of the auction system from the RBZ urging local banks to administer the process and make it inclusive of market forces.

Recently, the president of the Zimbabwe National Chamber of Commerce (ZNCC) Tendai Manzungu in a virtual address to business stakeholders warned against the RBZ executing the duties of local banks in allocating foreign currency.

“Banks should be on the forefront in allocating the foreign currency and not RBZ. It should become law for these banks to do that because currently, it’s limiting banks to support productive sectors,” said Manzungu.

However, authorities at the Central Bank have on many occasions expressed satisfaction that the foreign currency auction system is transparent and immune to manipulation hence a true valuation of the local currency.

Economic analyst, Pepukai Chivore in an interview with 263Chat said any distortions to the auction system could have resulted in the growth of the premium which is not the case.

“The genuineness of the exchange rate is not in its rate (Either high or low) but in its relative stability to foster price stability and improve market confidence. We have seen the official exchange rate fluctuating around 82-83 from week 8 of the auction that is 13 August. The effect has also been felt on the parallel market where exchange rate of between 95 and 110 has been maintained for the past 6 weeks or so. We can therefore use the 1:83 for international valuations without an iota of doubt and we trust that our authorities are not massaging the exchange rate. Any massaging will be reflected through the growth in the premium,”

“Although some market watchers contend that the auction system reflects more of a crawling peg and is not entirely determined by market forces, the decline in reserve money from ZW$16,66 billion as of July 31 to ZW$11,81 billion as of August 14 in a way is an explanation of why the Zim dollar has been marginally firming,” said Chivore.