Local banks should ensure the smooth functioning of the foreign currency auction system in line with free-market principles and leave the Reserve Bank of Zimbabwe (RBZ) to play its oversight role of the financial sector, business players have said.
The RBZ introduced the foreign currency auction system in June this year to support local companies with foreign currency under a Reuters auction system as compared to a fixed exchange rate one which was proving to be ineffective in stabilising exchange rates.
The system has succeeded in taming the exchange rate and stabilizing the local currency but observers believe that local banks are best suited to allocate resources going forward.
Zimbabwe National Chamber of Commerce (ZNCC) president Tinashe Manzungu in a State of the Economy virtual meeting held this morning said the RBZ was assuming local banks’ functions when allocating foreign currency.
“Banks should be on the forefront in allocating the foreign currency and not RBZ. It should become law for these banks to do that because currently its limiting banks to support productive sectors,” said Manzungu.
The auction based system came as a transitional system from the interbank market that was rather fixed and the assumption was that banks and other financial institutions would soon get involved in the auctioning of foreign currency but this has not been the case.
Proponents of local banks running the system say the banks are more accessible to business, including the small and emerging ones (SMEs) and this ensures inclusivity of all business players in accessing foreign currency.
They say despite RBZ having included SMEs on the foreign currency auction system, the criteria being used remains restrictive to small businesses and informal ones which constitutes the bulk of business enterprises operating in the country.
“Most SMEs are basically still on the parallel market. Pricing is based on the parallel market rate because that is where they get their foreign currency from,” said SMEs Association, founder, Farai Mutambanengwe.
The situation has limited banks’ capacity to lend to productive sector in the re-dollarizing economy.
“We need to transition the auction to an open market so that even Bureau de changes and banks can allocate foreign currency. Right now the parallel market has started to creep in again,” said Mutambanengwe.
Economic analyst, Professor Gift Mugano also weighed in saying the foreign currency auction system remains under threat as long as authorities do not restrict the existing gap between official and parallel market rates which continue to lure some businesses.
