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“Full Liberalisation Of Foreign Exchange Market Difficult”

Economic commentator, Persistence Gwanyanya, who is also a member of the Reserve Bank of Zimbabwe (RBZ) Monetary Policy Committee (MPC) said the full liberalisation of the foreign exchange market will be difficult because the foreign currency is concentrated in the hands of a few.

Gwanyanya made the remarks while speaking to The Sunday Mail on Saturday partly in response to a proposal by the Confederation of Zimbabwe Industries (CZI) to scrap the foreign exchange auction system and fully liberalise the forex market.

In its paper released on 22 April 2022, the CZI proposed what it termed “a true liberalisation of the foreign exchange market where banks act as match-makers linking buyers and sellers of foreign currency”.

But Gwanyanya argued that the companies that accounted for 85 per cent of the US$9.7 billion foreign currency receipts that were injected into the economy in 2021 are also sitting on Zimbabwe dollar balances, hence they have no incentive to sell forex. He said:

The challenge with our economy is that foreign currency is concentrated in the hands of a few.

Note, for example, that of the US$9.7 billion foreign currency receipts that were injected into the economy last year, US$6 billion was from exports.

And, of those exports, around 85 per cent are accounted for by a few commodities such as gold, diamond, platinum and chrome.

Hence full liberalisation cannot be an effective price-discovery system.

Why would companies like Mimosa or Zimplats, for instance, sell forex when they are also sitting on Zimbabwe dollar balances?

In a statement released on Saturday, 23 April, in response to the CZI paper, RBZ Governor John Mangudya said that the foreign currency auction system will remain in place. Said Mangudya:

The foreign exchange auction system remains in place and will not be suspended as doing so will cause shortages of goods in the market and abet inflation.

All foreign exchange accounts are safe and the bank has no reason or appetite to raid the accounts.

This comes after parallel market rates rose to levels of around $350 to the United States dollar last week, while the official exchange rate was at $155.

More: The Sunday Mail

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