Market welcomes forex auction relaxation

THE Reserve Bank of Zimbabwe has begun selling foreign currency to registered bureau de change to improve the accessibility of forex for small businesses.

"Pursuant to the resolution of the monetary policy committee directing bureaux de change to actively participate in the foreign exchange market to meet the foreign currency needs of small-scale enterprises and individuals, the Bank shall, with effect from 21 April, sell foreign currency to registered bureaux de change for on-selling to the customers," RBZ governor John Mangudya said in a statement.

"The bureaux de change must comply with the agreed terms of engagement which include supporting small transactions up to a maximum value of US$500 per transaction."

He said all transactions by participating bureaux de change will be monitored through the bureaux de change transaction reporting system put in place by the Bank.

This arrangement is expected to improve the efficacy of the foreign exchange market in the country and enhance the accessibility of foreign currency by the small-scale enterprises and individuals through formal channels.

The central bank introduced a second weekly currency system to cater for small-scale medium enterprises last year.

Economist Prosper Chitambara said the move by the central bank should help to stabilise the exchange rate.

"I think this is a positive move that will help stabilise the exchange rate," Chitambara said. "It will also help reduce the gap between the official rate and that of the parallel market because of the increased availability of the forex."

He said the availability of foreign currency on the market will be enhanced by the current tobacco selling season.

Mangudya turned to the foreign currency auction system in June last year after seeing exchange rates rampage on the dominant parallel market where companies were accessing cash for raw imports of raw materials and retooling.

By the first quarter of last year, the domestic currency had surrendered substantial value against the United States dollar, plummeting to about US$1: ZW$165 on the parallel market, from US$1: ZW$2,50 when it was introduced last June.

But since the return of the foreign currency auction system that faced heavy criticism by experts who said it had failed in 2004, the exchange rate has stabilised at about US$1: ZW$84.

This has also stabilised the parallel market rage, which almost grounded the economy by pushing up inflationary pressures and sparking relentless price hikes.

Experts are cautious about the sustainability of the current stability.

But major companies have said the central bank chief has helped significantly improve the availability of the greenback through the auction system.