The foreign currency black market, which was temporarily dampened by the introduction of the managed auction system last year, has resurfaced with a vengeance, prompting Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono to issue a stark warning to financial institutions.
Rates on the black market have soared to more than double the auction rate as demand outstrips supply. Even the so-called “World Bank” in Bulawayo is failing to cope.
While the United States dollar was trading at $6 053.64 at the auction on Monday, it was selling for as much as $13 500 on the black market the same day.
The rand, which was going for $1 043.50 at the auction floors is now fetching around $2 500 on the parallel market. The British pound, which is fetching $11 000 on the official market is now attracting rates of up to $23 000.
The Botswana pula traded at $1 388.10 at the auction but sold for as much as $3 000 on the black market.
The proliferation of the illegal foreign currency trade comes amid suspicions from monetary authorities that some financial institutions are actively participating on the parallel market.
Gono, who has wielded the axe against illegal foreign currency trading and imprudent banking practices, last week warned financial institutions against “imprudent operations” lashing out at what he termed “heartless and selfish pursuit of super profits”.
“We are deeply concerned by the resurgence of active parallel market trading in the economy, a result of heartless and selfish pursuit of super-profits by a few at the expense of the entire economy’s stability,” Gono said.
“We have also seen some of the players in the financial sector soiling their hands in these illegal practices, all for want of above-the-moon super profits,” he said.
The central bank governor warned of the pain suffered by some players in the sector caught on the wrong side of the fence.
“The central bank will, therefore, take stern measures against any licensed operators in the financial sector found directly or indirectly flouting exchange control regulations.
“Equally, as monetary authorities, we wish to warn retailers and other members of the corporate sector and the public that the bank is carrying out strict exchange control surveillance to smoke out illegal dealers, and all defaulters will be brought to book without fear, favour or hesitation,” Gono said
Increased demand for foreign currency and a fixed foreign currency allocation from the auction floors had seen the local unit on a free fall over the past six weeks, market watchers said.
The allocation has remained static at US$11 million despite bids shooting up from US$29.4 million on January 3 to a peak of US$101.3 million on February 14 2005. A staggering 4 277 out of 4 404 bids were rejected on February 17. On Monday 3 066 out of 3 206 bids were rejected. The illegal foreign currency trade has proliferated despite the central bank’s assurance to the nation that foreign currency inflows into the country were improving.
Last year a total of US$1.7 billion found its way into the country compared to US$301 million in 2003.
The central bank expects inflows to reach US$3.1 billion this year, 77 percent of the 1996 peak of US$3.9 billion.
Foreign currency shortages have worsened since the announcement of the extension in foreign currency proceeds repatriation periods by the RBZ in the fourth quarter monetary policy review statement late January.
Since February, exporters can now hold on to 70 percent of their foreign currency for 90 days, up from 30 days previously, in their foreign currency accounts and sell the balance at the ruling auction rate.
Analysts have noted that even if exporters exceed the mandatory 90-day remittance period, the penalty is only 15 percent of their export proceeds, which they would be required to dispose of at the official rate of $824 to the US dollar.
Since the announcement of these changes, the market has witnessed an unprecedented increase in the demand for foreign currency against a background of static supply compared to the previous period.
For instance, the amount of bids that averaged US$53 million during the last quarter of 2004 against an average supply threshold of US$10.5 million, increased to US$53.5 million in January 2005.
However, since February 2005, the average demand has shot up to US$94.37 million, as the demand has now breached the US$100 million mark, against a static supply of US$11 million.
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