New Forex Law To Bring Certainty – Economist

An economic commentator, Gift Mugano, said Statutory Instrument 118A of 2022 which made the interbank exchange rate the sole exchange rate to be used in commercial and other transactions provides certainty in the market.

Interbank rates are set within a banking system adjusting the rate to match what willing buyers and willing sellers demand and can supply.

Mugano said the new law also provides the legal basis for the transition from the auction-rate-centred pricing system to the willing-buyer willing-seller pricing linked framework. He said:

There was Statutory Instrument 127, which was compelling market players to use the auction rate. So the move to then use the interbank rate has put SI 127 to nullity.

So, I read it, they are now trying to make sure that there is a legal framework to compel people to use the interbank rate, which if it is done, will bring stability to pricing because it’s a predictable rate and is in line with the official rate.

Mugano, however, said the challenge will be on bridging the gap between the interbank rate and the parallel market exchange rate considering that 70 per cent of the economy is informal. He said:

If the gaps are huge, there is always a tendency of persuading economic agents . . . to use the parallel market rate.

Government must pay extra attention to the convergence of these two rates because enforcement is very difficult, Why?

Because the larger part of the economy is informal, so Government cannot be comfortable that they have a law at hand now and can enforce it.

They cannot enforce the law on the informal sector, which is over 70 per cent (of the entire economy).

There should be moral suasion towards compliance on the basis of the fact that there is no incentive for someone to use the other rate.

Under SI 118A of 2022, anyone selling goods and services, who uses any other rate faces a minimum civil penalty of ZWL$20 million.

More: The Herald

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