Illegal forex dealers feel the pinch

Black market forex dealers are feeling the heat following a raft of monetary measures recently put in place by the central bank to halt the depreciation of the local currency which had fuelled a spike in price increases.

The Reserve Bank of Zimbabwe (RBZ) established the foreign exchange auction system, which became operational in June this year.

The auction has stabilised the foreign exchange rate.

The money changers are also finding the going tough following the ban on mobile money agent lines and the introduction of daily transaction limits.

They now no longer have access to large sums of money which they used to have as the central bank has set a daily limit of ZWL$5 000.

This week, the parallel market rates tumbled to between ZWL$97 and ZWL$110 to the US dollar, down from about ZWL$125 per dollar.

This comes as Zimbabwe's foreign exchange market remains stable on the official market and officially quoted at ZWL$81.6 against the greenback at Tuesday's auction.

Illegal foreign currency dealers told Business Times this week that the auction was giving a better rate which has resulted in low activity on the parallel market.

"Right now the rate on the parallel market is not favourable, that is why you find that people are now preferring to trade in foreign currency because an equivalent of a dollar in local currency cannot make a purchase of something worth a dollar," said one dealer.

The Zimbabwean dollar has been constant at around ZWL$81.3 for every dollar on the auction system for the past couple of weeks.

Another dealer said they were finding it difficult to adjust their rates up as they were incurring a lot of charges in their bank and mobile money transactions.

"The way we are acquiring the RTGS does not allow us to adjust the rate because of the charges since we are now using personal lines.

When we were using agent lines I would actually get a bonus for transacting but with the personal lines it's really difficult.

The auction system has tamed our rate on the parallel market," he said.

The RBZ recently banned restricted individuals to one agent in an attempt to curb the trading of foreign exchange on the parallel market.

The central bank indicated that agent lines were no longer serving any legitimate purpose and were now being used primarily for illegal foreign exchange transactions.

Monetary Policy Committee Member and economist Eddie Cross said that they expect the stability of the local currency to continue until 2021.

"I think the new situation is here to stay. We are delighted with the outcome of the auction which we advocated for a year ago.

It has stabilised the exchange rate and as a consequence it has stabilised inflation", said Cross.

He added: "We need, however, to ensure that there is sufficient foreign exchange on the auction to meet demand."

Despite the stability of the local currency, the cost of living soared 4.1% to almost ZWL$18,000, according to the Zimbabwe National Statistics Agency, as some companies continue hiking prices of goods and services.

There has also been a shortage of smaller US Dollar notes creating a shortage of change which in most cases has forced the use of the local currency further increasing transactions in local currency.