By Alois Vinga
THE foreign exchange auction trading system announced by the Reserve Bank of Zimbabwe (RBZ) commences this Tuesday and spells the end of government’s unpopular interbank market era.
The new system announced by RBZ governor, John Mangudya last week aims to maintain a balance between stimulating productivity while eliminating reckless speculative behaviour which has seen rates at the parallel market escalate.
Under the auction system buyers will submit no more than one bid, unless justified, as individuals, firms and public enterprises through their banks.
The allocation of foreign currency to successful buyers shall be based on foreign currency priority.
The auction system will only accept bids for amounts ranging between US$50 000 up to a maximum of US$500 000.
“The bidding platform shall be the Reuters Foreign Currency Auction system which shall be linked to the Computerised Export Payments Exchange control system and computerized export payments Exchange control Batch application system,” Mangudya said.
The new system is more efficient when compared to the current Interbank Foreign Currency Exchange market which favours highest bidders at the expense of productivity linked priority.
Under the interbank market, foreign currency buyers had the temptation of offering the highest price and wipe away the available foreign currency.
In the process, prices of basic commodities and services which are normally indexed against the US$ rate would unnecessarily increase at the mercy of bidding wars and perceptions.
The authorised dealers will be expected to collect all the details of the buyers including their import and export capacity.
Among other measures, the auction will be conducted once every week on Tuesdays while cut-off for submissions of bids will be 09:00 hours on the day of the auction and the results will be released and published by 16:30 hours on the auction day.
Payment for winning bids will be made through the Zimbabwe Electronic Transfer and Settlement System.
The bank will transfer the foreign currency to the Nostro account winning bidders’ authorised dealer, after receiving the Zim dollars equivalent. In line with international best practice.
Buyers found to be participating on the market for the sake of manipulating rates and those with positive balances in their FCA Nostro accounts will be barred from carrying out trades.
Upon completion of trading, all details on the highest to the least bids will be shared.
“The foreign currency exchange auction system shall be funded from Offshore facilities arranged by the bank, availed through surrender requirements, which will be liquidated at the prevailing market rate , and export proceeds liquidations upon expiry of the 30 day retention period and foreign currency exchanged by exporters and free funds holders through the banking system,” added Mangudya.