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Mnangagwa to abandon RBZ's forex auction system?

by Staff reporter
29 Jul 2023 at 12:46hrs | Views
President Emmerson Mnangagwa has hinted the Dutch forex auction floor system, which is under the control of the Reserve Bank of Zimbabwe, could be scrapped since it has served its purpose.

The move comes after industry put pressure on the governor of the Reserve Bank of Zimbabwe, John Mangudya, to think about scrapping the ‘inefficient' Dutch foreign currency auction system or to overhaul it.

Local firms have been struggling to access foreign currency allotted to them through the foreign currency auction system, amid revelations it is taking months to process the allocated funds.

"As we go forward, we should reach a stage where we may not need it (Dutch forex auction system) because it's not necessary. It has been put there to deal with a particular challenge and I think that challenge is going away. We may reach a stage very soon where we may not need it," Mnangagwa told Brick by Brick magazine.

It also comes following the introduction of the Wholesale foreign currency exchange market aimed at enhancing the interbank forex market meaning this has become the primary source for foreign currency needs for the economy.

It has overtaken the auctions that have over the years been carried out at the Dutch forex auction system since 2020.

Now, the wholesale platform has been adopted to allow banks to sell forex on the interbank market through commercial banks.

Finance and Economic Development Minister Mthuli Ncube said a maximum of US$5m will be allocated weekly to the Dutch forex auction system and will be paid within 24 hours.

But, analysts said the ‘meagre' limit highlighted the economy had dollarised and left no need for the system introduced in 2020 to give a fair value of the Zimbabwe dollar against the United States dollar.

Business executives and a number of analysts argued that the auction system failed to produce the desired results but was turned into a hub for cheap US dollar accumulation for cronies.

This was against the true Dutch system, which promotes competition among bidders.

Businesses said it has been a disaster as it failed to act as an exchange rate discovery platform.

Source - businesstimes