THE Zimbabwe dollar shed nearly 79% of its value on the first day of being floated under a foreign currency auction system launched yesterday.
BY TATIRA ZWINOIRA
At the close of the auction, the official exchange rate had crashed to US$1:57,3582 from US$1:25 in the latest endeavour by the central bank to stabilise the troubled currency. With the auction being held once a week, it means the currency will trade at the new rate until the next sale on Tuesday next week.
A total of US$10 345 250,04 was allotted at the end of yesterday’s trading despite bids of $11,407 million, suggesting the market was not liquid enough to meet demand.
According to the foreign exchange auction results the Reserve Bank of Zimbabwe (RBZ) released yesterday, the highest bid was $100 for one United States dollar reflecting the exchange rate currently prevailing on the black market.
However, the lowest bid for the greenback was $25,50, meaning someone managed to buy the United States dollar at a significantly small amount.
Despite the opening of the foreign exchange auction, the parallel market rate remained unchanged.
Previously, the official exchange rate stood at 1:25 — a fixed amount imposed in March by the RBZ, which has accelerated the depreciation of the local currency.
In a breakdown of the total allotted amount, raw materials received US$2 883 052,05; machinery and equipment (US$2 407 666,89); food and beverages (US$1 398 340); services (US$1 308 996,12); consumables (US$1 286 995,43); portfolio investments (US$436 400,73); fuel, electricity and gas (US$263 147,46); chemicals (US$257 015); livestock (US$53 636,36); and medicals (US$50 000).
Financial expert Persistence Gwanyanya said that the opening position of the foreign exchange auction was good.
“The way it is being conducted, in my view, is a step in the right direction. It is giving mainly the buyers of foreign currency the option to bid for that foreign currency,” Gwanyanya said.
“The Reserve Bank is meeting the supply side of foreign currency. Have you also seen that fuel has also bid in that auction system?
“We wanted some measure of relief of funds that would have ordinarily been surrendered to the Reserve Bank to go into that market to liquefy it.”
He added: “I can say the foreign currency exchange auction system will provide a more credible meeting of the minds which would speak to the whole transparency of the market.
“Now, as you can see, someone bid at $100 and the market averages $57,35 meaning that this guy has bought at a very high price while the market was willing to supply at a lower price. This means that the black market rate is actually not reflective of the price that suppliers of foreign currency, including the government, are willing to accept.”
He said if the market was broadened and widened, there would likely be increased participation of all people into the market and more efficient price recovery going forward.
“If you look at the amount of foreign currency that we receive as a country, it may mean that the exchange rate is likely to soften going forward, which would be good for an import dependent nation,” Gwanyanya said.
However, he said the low bid of $25,50 meant that someone bought the greenback at an even lower price than the weighted average, which needed the central bank to publish the names of the bidders who would have been allotted the greenback to ensure transparency.