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Herald Reporter

Auctions of foreign currency will be used from Tuesday next week to set the official exchange rate, the Reserve Bank of Zimbabwe (RBZ) announced last night, with approved importers bidding every Tuesday through their banks for the foreign currency earned by exporters or through offshore facilities arranged by the RBZ.

The system is expected to “bring transparency and efficiency in the trading of foreign currency”.

The foreign exchange will come from three sources:

Offshore facilities arranged by the RBZ;

Retained export earnings liquidated at the new prevailing market rate when exporters do not spend or sell these retained funds at the end of 30 days;

Foreign currency sold by exporters and holders of free funds through the banking system at the prevailing market rate.

The weekly auction will set the official ruling market exchange rate for the next seven days, this rate being the weighted average of the prices paid for the allotted currency at the end of each auction.

In order to enhance efficient pricing in the economy, businesses will be obliged to display prices for goods and services in both local currency and foreign currency, the foreign currency prices to be at the ruling market rate.

Giving details of the operation of the Foreign Currency Auction System, the RBZ said bidders have to submit one bid per auction, with all their bids rejected if they submit more.

Bidders can be individuals, firms and public enterprises, with bids submitted through authorised dealers, defined as banks.

Bids have to be for a minimum of US$50 000 and a maximum of US$500 000 per auction. The bidding platform is the Reuters Foreign Currency Auction System and this will be linked to the Computerised Export Payments Exchange Control System and the Computerised Exchange Control Batch Application System.

Allotments for winning bidders will be based on the import priority list. Successful bidders will buy the currency at the rate they bid, starting from the highest bidder and working down until all currency on offer is allotted.

Successful bids will be allotted in full, but if funds are not enough then there will pro-rata allotments.

Banks will serve all importers and users of foreign currency at the ruling rate between auctions. The crawling exchange rate will only be used for Government and debt service.

Bids have to include a number of details including the name of the bidder, bank, type of transaction and sector category, the amount in US dollars being sought, the rate being offered, the Zimbabwe dollar equivalent, a declaration of any FCA balance and critically to ensure the money is used for imports, the relevant import invoice.

Bids can be submitted up to 9am on the day of the auction and results released by 4.30pm.

Those with positive balances in their nostro accounts will be disqualified unless they can justify their need for more forex and exporters can only participate if they have brought in proceeds of their exports as legally required.

Those with overdue and unacquitted bills of entry are also disqualified. Anyone participating in an auction  for the sake of currency manipulation will be disqualified from the system. The RBZ has listed the detailed data that will be released at the end of each auction.

For almost 11 weeks, Zimbabwe has been using $25:US$1 as the official rate, with ever declining sums being sold on their interbank market as a result. This has seen even highly respectable businesses resorting to the black-market for import requirements, pushing that rate up sharply and in turn driving up local currency prices.

The new transparent system is likely to produce a ruling rate below the black-market rate, since buyers wanting funds to manipulate exchange rates or for capital transactions are barred, and businesses must have a need for the currency, showing the invoice and inadequate nostro funds, before they can buy. Stocking up on currency for the future is not permitted.