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John Mangudya and CZI kiss and make up

by Mandla Ndlovu
27 Apr 2022 at 11:39hrs | Views
In its position paper on the sensitive issue leaked to the media on Friday, CZI called on the Reserve Bank of Zimbabwe (RBZ) to suspend the foreign currency auction system after the Zimdollar fell to $350 against the greenback whose official interbank rate stands at $155.

In a statement issued by Kurai Matshez, the  CZI President, the organization said:

Further to the unintended circulation of The Confederation of Zimbabwe Industries (CZI) paper, meant for dialogue with the authorities, we would like to clarify matters and update our members and the public. We have subsequently met with the Reserve Bank of Zimbabwe (RBZ) Governor, Dr JP Mangudya and would like to highlight the outcome of our meeting. The CZI wishes to relay the following specific matters discussed with the Governor and the assurances given on the same:

1. The de-dollarisation is going to be a process and no rushed return to an exclusively Zimbabwe Dollar or USD environment is planned,

2. There is no intention to 'raid' foreign currency balances,

3. The auction backlog is a priority for the RBZ and concerted efforts are underway to clear this backlog.

The other matters raised in the said CZI document shall form the basis of further consultations between CZI and the Authorities on a continuous basis as is our normal and usual custom.

As CZI, we remain committed to engage with government and collaborate in the best interests of the economy, our members and business.

On Friday, the Confederation of Zimbabwe Industries (CZI) issued a candid paper accusing the RBZ of failing to implement the tenants of a Dutch auction system to ensure the smooth operation of the auction system and establish a true price discovery for the local currency.

It brought to the fore the inefficiencies of the auction system, including payment backlog stretching up to 10 weeks.

It also called for the suspension of the auction system until a time the Bank has cleared payment backlogs for allotted bids.

Read an extract from the paper below:

The Dutch auction was initially implemented according to the rules of the auction which rules were flouted and this is evidenced by the failure of the auction to settle bids and accumulating backlogs stretching over ten-week periods. This means the auction was auctioning money that was not there. Reports of companies having bids being prorated yet they would have submitted high-rate bids are also an indication the Dutch auction rules which state that the highest bidders get all their allotments was flouted. We published and shared a paper highlighting potential pitfalls which was a comparative analysis of auctions that have succeeded or failed, and we have gone on to do what is in the auctions that have failed.

 • The result of the above is that we lost the near convergence position that the auction had achieved in the beginning and trust was also lost especially after several promises of clearing the backlog and this is to companies that still trying to find solutions to legacy debt of yesteryear.

 • The failure of the auction to stay on track prevented the expansion of the supply side where holders of foreign currency did not

It is important that a balanced approach is taken to bring back the local currency from the brink of rejection that it faces now in the face of exchange rate instability and increasing inflation. We must also by all means avoid the rushed decision to prematurely introduce a mono currency as the consequences of such are known from the recent past. This approach should take the local currency to the point where it is absolutely trusted by both Government and Citizens as the preferred medium of exchange ahead of any other currency and as the most credible store of value of any savings deposited in any commercial or savings bank under RBZ supervision.

We highlight the three main pillars of policy focus that are needed urgently (these are not in the form of Sls, punishments and blame allocation) 1. Restoring trust and credibility of the ZWL by ensuring it is the preferred medium of exchange and a credible store of value.

Source - Byo24News
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