News / National
Forex black market struggles
28 Jul 2019 at 09:08hrs | Views
FOREIGN currency trades on the interbank market have greatly improved as people shun the risky black market, Reserve Bank of Zimbabwe governor Dr John Mangudya said.
The trades are also expected to further improve after the central bank directed transactions worth less than US$500 be done without any questions asked to traders.
Such small amounts normally come from recipients of Diaspora remittances. The inflows from people living abroad amounted to US$553 million between January and July 21.
The central bank chief said the re-introduction of the Zimbabwe dollar- abolished about a decade ago - saw the interbank and black market exchange rates converging, with average daily trades increasing to US$2 million, from US$500 000.
Prior to this, the black market was most preferred as it offered better rates than the interbank market.
"We are quite happy with activities on the interbank market over the past four months, but more so after the SI 142 (Statutory Instrument 142 of 2019)," Dr Mangudya said during an interactive meeting with the Zimbabwe Economic Society on Thursday last week.
"We have seen a great improvement on the interbank forex market where right now banks and bureau de changes are purchasing foreign currency from their customers at a rate of about $2 million per day. Before that it was $500 000 and below.
"So it means many people are now using banks as avenues for them to exchange money. We want to move away from people exchanging money under the trees."
Last month, the Government announced that the US dollar, alongside the South African rand, Botswana pula and other foreign currencies were no longer legal tender in Zimbabwe, effectively abandoning the multi-currency regime, which Zimbabwe adopted in 2009 when hyperinflation rendered the Zimbabwean dollar worthless.
The move also averted the country from plunging into full re-dollarisation when the economy did not have enough US dollars to support this. The continued depreciation of the local currency against the US dollar had seen most businesses preferring to quote prices in US dollars in a country where the majority are paid RTGS dollars.
The recent re-introduction of the local currency was the final phase of currency reforms, which Dr Mangudya said started in 2016 following introduction of bond notes, a surrogate currency which was pegged at par with the United States dollar.
Zimbabwe abolished 1:1-dollar peg in February and introduced the interbank market.
The Zimbabwe dollar traded 8,9 against the greenback on Friday and has so far lost 71 percent of its value from 2,5 when the interbank market opened in February 22 this year.
Dr Mangudya said there was no reason why people should exchange money on black market when the rates have almost converged.
"As regulators, we have decided (that) anything below US$500, you can go and sell or buy from the bank without questions being asked.
"We are doing that . . . for the purpose of making sure that people do not find any reason to go to the parallel market. So even if you are arrested on the parallel . . . there is no reason why you are going there. After all the rates have almost converged."
Dr Mangudya said the coming back of Zimbabwe dollar marked the end of currency reforms with focus now shifted towards stimulating growth largely anchored on boosting confidence, productivity and maintain policy consistency.
He said the country's most critical issue was low level of production as the country is failing to produce basic commodities.
"We have low confidence levels in this economy; it is visible, it is seen, it is tangible. The production levels in this country are so low; we import even basic commodities that are supposed to be produced by ourselves in this country" said Dr Mangudya.
"So the confidence level is what we are working on; we must do better. After this, we do believe that we have now put a strong foundation for the revival of the economy.
"The past nine months was painful for everyone but we cannot continue in pain. We want to move on as a country because there are no more currency reforms coming."
The trades are also expected to further improve after the central bank directed transactions worth less than US$500 be done without any questions asked to traders.
Such small amounts normally come from recipients of Diaspora remittances. The inflows from people living abroad amounted to US$553 million between January and July 21.
The central bank chief said the re-introduction of the Zimbabwe dollar- abolished about a decade ago - saw the interbank and black market exchange rates converging, with average daily trades increasing to US$2 million, from US$500 000.
Prior to this, the black market was most preferred as it offered better rates than the interbank market.
"We are quite happy with activities on the interbank market over the past four months, but more so after the SI 142 (Statutory Instrument 142 of 2019)," Dr Mangudya said during an interactive meeting with the Zimbabwe Economic Society on Thursday last week.
"We have seen a great improvement on the interbank forex market where right now banks and bureau de changes are purchasing foreign currency from their customers at a rate of about $2 million per day. Before that it was $500 000 and below.
"So it means many people are now using banks as avenues for them to exchange money. We want to move away from people exchanging money under the trees."
Last month, the Government announced that the US dollar, alongside the South African rand, Botswana pula and other foreign currencies were no longer legal tender in Zimbabwe, effectively abandoning the multi-currency regime, which Zimbabwe adopted in 2009 when hyperinflation rendered the Zimbabwean dollar worthless.
The move also averted the country from plunging into full re-dollarisation when the economy did not have enough US dollars to support this. The continued depreciation of the local currency against the US dollar had seen most businesses preferring to quote prices in US dollars in a country where the majority are paid RTGS dollars.
Zimbabwe abolished 1:1-dollar peg in February and introduced the interbank market.
The Zimbabwe dollar traded 8,9 against the greenback on Friday and has so far lost 71 percent of its value from 2,5 when the interbank market opened in February 22 this year.
Dr Mangudya said there was no reason why people should exchange money on black market when the rates have almost converged.
"As regulators, we have decided (that) anything below US$500, you can go and sell or buy from the bank without questions being asked.
"We are doing that . . . for the purpose of making sure that people do not find any reason to go to the parallel market. So even if you are arrested on the parallel . . . there is no reason why you are going there. After all the rates have almost converged."
Dr Mangudya said the coming back of Zimbabwe dollar marked the end of currency reforms with focus now shifted towards stimulating growth largely anchored on boosting confidence, productivity and maintain policy consistency.
He said the country's most critical issue was low level of production as the country is failing to produce basic commodities.
"We have low confidence levels in this economy; it is visible, it is seen, it is tangible. The production levels in this country are so low; we import even basic commodities that are supposed to be produced by ourselves in this country" said Dr Mangudya.
"So the confidence level is what we are working on; we must do better. After this, we do believe that we have now put a strong foundation for the revival of the economy.
"The past nine months was painful for everyone but we cannot continue in pain. We want to move on as a country because there are no more currency reforms coming."
Source - sundamail
