US$2bn allocated at forex auctions

More than US$2 billion was allotted to almost 6 000 entities at the Reserve Bank of Zimbabwe's weekly foreign currency auctions from when they opened near the end of June last year to the end of last month.

The auctions were introduced last year to restore stability to the foreign currency market and ensure that the productive sectors were able to access foreign currency without having to dip into the black market. It very quickly brought stable exchange rates for the bulk of all foreign currency dealings and that in turn saw dramatic lowering of inflation rates.

The RBZ Governor, Dr John Mangudya on Thursday released a list of successful bidders from both the main auction and that for small and medium scale enterprises. The regular updating of the lists is in line with the bank's commitment to keep the public informed of developments in the foreign exchange market.

The lists show that 1 822 companies and other entities had been allotted US$1 859 080 165 in the main auction while another 4 136 companies and entities had been sold US$267 395 337 on the SME auction.

"The auction system remains the most diversified source of foreign exchange with more than 5 958 entities having accessed foreign currency through the main auction and the SMEs auction.

"The bulk of the allotted funds, 60 percent, has gone towards payment for raw materials for US$857,6 million and machinery and equipment for US$421,7 million. The residual 40 percent was going towards payment for consumables, pharmaceuticals and other critical needs of the economy," Dr Mangudya said.

Of the US$4 928 568 047 in foreign exchange payments in the first nine months of the year, the bulk, US$3 151 356 235, came from foreign currency accounts, largely what exporters had been able to retain for their own use plus free funds. The auctions provided US$1 501 541 525 while the interbank market contributed US$275 670 287, basically holders of foreign currency accounts selling part of their holdings through their bankers at the interbank rate.

This week the RBZ met with the leadership of the banking and business sectors where it reiterated its commitment to the auction system and pledged to minimise the delay between accepting a bid and the actual disbursement of the money.

The meeting followed the recent onslaught on the local currency in the black market which took most by surprise since the fundamentals, especially the fact that foreign currency inflows exceed foreign currency outflows, suggested this could not happen.

In order to sharply reduce the influence of speculators holding large sums of local currency, banks pledged to improve surveillance of accounts and block those being used for speculative purposes while businesses agreed to use the official auction system rate in their pricing although they were given leeway to charge up to 10 percent more from the official rate.

Several businessmen and their companies have been arrested and their cases are before the courts for illegally dealing in foreign currency in the first six months of last year before the auctions opened and before major controls were imposed on mobile money platforms, which had moved in fact if not in law to unregulated transfers.

Government has warned that those found illegally dealing in foreign currency would face the full wrath of the law.