Banks and Bureaux De Change operators can now freely trade foreign exchange subject to market forces after Government liberalized the forex trading market as part of measures to arrest exchange rate volatility and inflation.
To buttress the decision, Treasury has with immediate effect introduced an electronic forex trading platform based on the Reuters system, which allows registered financial institutions to freely trade foreign exchange.
A broadly constituted Currency Stabilisation Taskforce has since been set up part of measures to arrest persistent exchange rate distortions and help create a true market exchange rate.
The interventions are meant to enhance transparency and effective foreign exchange trading on the formal channels, which have trailed behind the parallel market. This comes at a time when the country is experiencing price escalation largely driven by speculative parallel market activity. In the past few days the exchange rate volatility has seen US$1 hovering around ZW$40 for electronic transfer and ZW$25 for cash compared to US$1: ZWL$18 on the interbank market.
The rand has also jumped to ZW$2,50 for mobile money from about 1:1 at the beginning of the year.
In a press statement, Finance and Economic Development Minister, Professor Mthuli Ncube, lamented the absence of a transparent and effective foreign exchange trading platform as he acknowledged that official rates have not been effectively determined amid a seemingly thriving parallel market. He said the trend has translated into unsustainable levels of inflation.
“To correct this anomaly, an electronic forex trading platform based on the Reuters system is being immediately put in place. This platform will allow foreign exchange to be traded freely amongst the banks and permit a true market exchange rate to be determined,” said Prof Ncube.
“The Bureaux de Change, will also participate on this platform through their authorized dealers. The trading rules of the Bureaux de Change are being liberalized so that they can conduct all wider range of transactions. This mechanism will be immediately operational.”
However, the minister said the Reserve Bank of Zimbabwe (RBZ) would continue to be a significant player in the market by providing liquidity to stabilize the exchange rate, where necessary.
Prof Ncube said that Government was taking measures to stabilize the runaway exchange rate and bringing down inflation to sustainable levels in order to achieve macro-economic stability.
“To stabilise the exchange rate and hence, lower inflation, Government has decided to implement a holistic package of key policy measures. In this regard, a Currency Stabilisation Taskforce has been set up,” he said.
The taskforce will be spearheaded by the Ministry of Finance and Economic Development and the RBZ and will include members of the Monetary Policy Committee (MPC) and Presidential Advisory Committee (PAC). Prof Ncube would chair the taskforce, scheduled to meet at least once a week to review the conditions in the markets, monitor the behaviour of key variables such as the exchange rate and inflation, and to ensure that outlined measures are expeditiously implemented.
The taskforce has the mandate to put in place additional policy measures, where necessary so as to enhance macro-economic stability, which is an essential component of the Transitional Stabilisation Programme (TSP) – a critical blue-print for economic growth and achievement of the goals Vision 2030.
As such, Prof Ncube said several specific steps and measures will be taken by Government and key stakeholders to ensure the success of the new system. For instance, the interbank market for commercial banks will be operationalised based on the Reuters system whose trading rules have already been agreed to. Prof Ncube said the Reuters system will generate a daily exchange rate and that banks will charge thin margins on Bureaux de Changes on transactions that are routed through them as authorised dealers. Similarly, Bureaux de Changes will be immediately liberalised as per RBZ rules, which are ready for implementation.
“There will be no limit on bureaux ability to finance importers…They can trade foreign exchange at +/- 5% of daily,” said Prof Ncube.
“Bureaux shall have a minimum float of USD20,000 and have access to physical cash available from RBZ subject to daily limits. Cash purchases can be paid for in ZWL at 1:1 or USD at daily exchange rate. All bureaux requirements shall be demand driven.”
The minister said the RBZ would monitor daily exchange rate and intervene where necessary so as to maintain a fully operationalises Reuters trading desk. Furthermore, the use of free funds for importation of goods and services will remain liberalized as is the case with direct fuel imports.