The Sunday Mail
The move by the Reserve Bank of Zimbabwe (RBZ) to make the interbank mid-rate the principal reference rate for all foreign currency trading, has slowed down transactions on the interbank market.
Last month, the country’s apex bank determined authorised forex dealers and Bureaux de Change were not supposed to go above margins of 3 percent and 5 percent, respectively of the interbank mid-rate.
The development was necessitated by chaos that had become prevalent around these official players, whereby an authorised forex dealer or Bureau de Change, could set rates of their choice as competition for the hard currency had increased, resulting in “official” rates that would even exceed parallel market offerings.
“The spread of interbank foreign currency buying and selling by Authorised Dealers shall be at a margin that shall not exceed 3 percent of the interbank mid-rate and for Bureaux de Change, the margin shall not be more than 5 percent of the interbank mid-rate,” announced the central bank in an Exchange Control Directive RU131/2019 at the end of September.
“These margins are inclusive of commissions and fees. The RBZ shall continue to publish the daily interbank mid-rate for foreign currency trading.
“In line with Section 3 (1) (c) of the Exchange Control (Authorised Dealers with Limited Authority)order 2015, Statutory Instrument 104 of 2015, all Bureaux de Change transactions shall be settled on spot basis and the Zimbabwe dollar settlement shall be done directly into customer’s bank/electronic accounts or debit cards and shall not be in cash, vouchers or in-kind.”
But — the positive intentions of the monetary authorities notwithstanding — the rate realignment, appears to have hit hard trades on the interbank market.
Financial institutions say they have witnessed significant declines in trades on the interbank market this past week.
“There are currently no trades (on the interbank market) after the central bank basically determined the rate at which we should be trading. Exporters are holding on to their hard currency because they believe that the interbank market rate is too low,” said a top official with a leading commercial bank, who cannot be named for professional reasons.
The source said when Exchange Control Directive RU131/2019 was issued on September 27, the RBZ prescribed an interbank rate of 13,2566 (the so-called ‘set mid-rate’) to the United States dollar, which would calculate to around 15,7 when they factor in the set margin.
“Trades have literally dried out on the interbank. It’s only small players who are coming through, and in a few cases only the very desperate ones,” added the source.
Said another banking insider: “Over the past week or so, trades on the interbank have been subdued after the Reserve Bank introduced the set mid-rate, I think it is a way of stabilising the rate, because the pace at which it was moving was a bit too much.”
There are fears that some holders of foreign currency and willing customers might end up transacting outside the formal channels, in the process driving rates and prices up.
The interbank market was introduced this February to normalise foreign currency trading and curb the inflationary parallel market. At the time of its launch the interbank rate was initially pegged at 1: 2,5 as a guidance rate.
But the RBZ then removed the guidance rate, and the local currency has been depreciating against the US dollar losing around 510 percent of its value to trade at an average of 15,25 to the US dollar as at the close of this week.
Measures are already in place to protect the interbank market from being manipulated.
Among some of the key measures that will curb manipulation of the system include daily publication of the previous day’s rates, and banks are required to report activities of the interbank foreign currency market to the central bank that shall closely monitor the foreign currency trades on a daily basis using the form and format stipulated by the RBZ.
Bureaux de change and their agents are also required to report their activities of the inter-bank on a daily basis to the central bank. However, it had never been made clear at what margins financial institutions and Bureaux de Change could trade in terms of the official rate.
Official figures show that US$799 million had been traded on the Interbank Foreign Exchange Market by mid-September since its inception.
“The introduction of the interbank foreign currency market was meant to address the foreign currency grid-lock arising from widening parallel market activities by harnessing foreign exchange through the formal market.
“As a result, about US$799 million worth of foreign currency has been traded on the interbank market since its introduction,” said RBZ governor Dr John Mangudya in his Mid-Year Monetary Policy statement recently.
However, Dr Mangudya did not respond to questions sent on his mobile phone.
The quantum of US$799 million over an eight-month period is still hardly adequate to have met industry, with industry representative the Confederation of Zimbabwe Industries (CZI) saying, it typically requires around US$300 million a month to meet their members’ foreign currency requirements.