An economic commentator, using the Twitter handle @baba_nyenyedzi said four weeks after the Reserve Bank of Zimbabwe (RBZ) introduced the Foreign Exchange Auction System, it has become apparent that the rate will never stabilise as long as inflation remains high. Below is the analyst’s thread in full:
The RBZ forex Auction. Whither from here? The introduction of the auction started 4 wks ago at a rate of 57.3582. And it is now 72.147 to the dollar. This contrasts with the parallel market rate of 105 ( volumes rate). What do we learn about the process? Where are we going?
We must be clear that the Auction supply of currency is mostly the RBZ- which borrowed USD to feed the auction. The demand is mostly importers on the RBZ priority list. By this account, the Auction is only one of the many markets prevailing. So far, it’s an importers market.
That those who have successfully bid at the Auction have in practice received USD is a good thing. A market is simply a buyer and seller exchanging value. Therefore, the Auction is a market.
It is also true they are many others are transacting at 90-105. Diaspora remittances are over USD$100m a month. Unencumbered funds not transacting through RBZ Auction. This too is a significant market.
In four weeks, the parallel market has held steady while the Auction rate has depreciated by 25.78%. It is clear; (1) Auction is still in price discovery mode (2) Exporters have not entered the market because a higher rate prevails elsewhere.
This is all very normal. What is not normal is the obsession of running narratives of trying to kill off the parallel market, muzzle “speculators”, introduce an SI to force business to charge at Auction rate (price control) & to claim, the rate has been stable from intervention.
[The government of Zimbabwe] must appreciate by sellers it’s currency at 72, the importer has zero obligation to price according to this. Especially when inflation is 737%. It is obvious the replacement rate of stock will be higher. Scarce importers & they will move elsewhere.
Therein the economic fundamental problem with Zim exchange rates in all markets. They carry excess baggage of 737% inflation. Malawi, Kenya, South African exchange rate don’t carry this baggage. Thus inflation of 737% guarantees the rate will never be stable. Never.
This is the worry, 4 weeks into Auction. The narrative of stability is impossible with hyperinflation. Will the authorities accept the instability of the auction rate, a year from now? To gain stability, GOZ must address the inflation problem. This is right at its doorstep.