‘Free forex trading a double-edged sword’

30 Mar, 2020 - 00:03 0 Views
‘Free forex trading a double-edged sword’

The Chronicle

Prosper Ndlovu/Oliver Kazunga, Business Reporters
CONSUMERS and economists have said they expect the free trading in foreign currency to tackle price escalation and create a predictable business environment.

They however, expressed fears that the fixing of the exchange rate could create arbitrage opportunities and disadvantage those earning local currency.
Reacting to the latest measures by the Reserve Bank of Zimbabwe (RBZ), which liberalised transacting in foreign exchange and fixed the exchange rate at US$1:ZW$25, consumers said more measures need to be put in place to ensure that businesses do not favour those with forex and prejudice those without.

In its measures, the Apex Bank stated that adoption of the fixed exchange rate and suspension of any charges related to the provision of electronic payments was part of monetary interventions in response to the financial vulnerabilities caused by the COVID-19 (coronavirus).

While the RBZ said the legal process to effect the measures were being finalised, the announcements have excited the market but also raised questions as to whether Government was re-dollarising and dumping the local currency. Others have sought to understand the impact of the measures on ordinary consumers.

Asked to clarify these issues, a senior RBZ official who requested anonymity citing professional reasons, said free forex trading does not mean dollarisation as prices will remain indexed in the local unit despite acceptance of forex payment.

“We are not re-dollarising. What we are saying is that people can use their free-funds, which they already have in the country. So, in the meantime while there is this coronavirus, the last thing we want is to see people going to look for a bureau de change or some place to exchange their money so that they can buy at Pick n’ Pay or wherever they want to buy,” said the official. The official further explained that the new measures meant that businesses will not be penalised for accepting payments in US-dollars as was the case before. “But remember that they (businesses) are still going to quote their prices in Zim-dollars but accept to be paid in US-dollars. Therefore, people are using free-funds that they already have,” the official said.

The RBZ is on record saying the de-dollarisation process would take up to five years, which means that during that period, people should be able to easily use the US dollar. “We need to make it easy for people to use the dollar because 5-year de-dollarisation programme doesn’t mean it disappears today, it disappears over time. So, we are still in that time space. Which means we are working on the programme to make sure that we strengthen the demand of the Zim dollar,” said the RBZ official.

The Association for Business in Zimbabwe (ABUZ) chief executive officer, Mr Victor Nyoni, said Treasury must clarify if some businesses, particularly supermarkets, are now allowed to sell in United States dollars as has been happening in some sectors.

“If so this unfornately will cause a critical part of our economy to dollarise. Supermarkets cannot sell in forex while they pay their suppliers in local currency.

“It becomes an unfair trade. Suppliers too would want to be paid in forex in order to meet their forex obligations with ease,” he said.

“Another challenge is that supermarkets will apply mechanisms to attract customers with forex. This will mean that one supermarket will begin to offer higher rates above the 1:25 stipulated by Government as incentive and that will further devalue the Zimbabwe dollar.”

Financial economists have said that the fixing of the exchange rate at US$1:Z$25 could be problematic in view of black market operations where traders are known for offering a higher exchange rate.

“Who will exchange the USD at 1:25 when they can obtain more in the streets and still buy from the shops that will observe the application of the fixed rate rule?” asked Mr Nyoni.

Consumer Rights’ Association spokesperson Mr Effie Ncube said the constant shift in monetary policy breeds uncertainty, which shortchanges consumers.

“We would love to have monetary stability and not to have this policy this week another policy next week. What this country needs now is policy predictability,” he said.

“Investors and consumers are looking for policy predictability. When we say this is the currency we adjust and go through with it instead of having a situation where we go for three months with a particular currency and the other three months with another currency. It becomes very difficult because you don’t know how to invest because consumers are investors as well.”

Retailers said the temporary return of the multi-currency system was progressive and commended RBZ for acknowledging market realities.

“The RBZ governor has shown that he is progressive and alive to the day-to-day challenges that consumers are going through when they are purchasing. Consumers have been exposed to such practices (forex trading) in many of the informal markets,” Confederation of Zimbabwe Retailers (CZR) president, Mr Denford Mutashu said.

“So, what this has done is to bring uniformity in pricing in the economy. It curtails the exchange rate advantages that were previously enjoyed by the informal market ahead of the formal market,” he said.

Mr Mutashu also noted that often prices in forex were actually seen to be cheaper and more affordable than prices in local currency.

“So, that disparity now is certainly going to be enjoyed by all customers because customers who were patronising the formal market were not enjoying that privilege,” he said.

He, however, could not state if retailers would abide by the US$1:ZW$25 fixed exchange rate saying that rate level was not a true reflection of the market realities when compared to parallel market rates. Instead, Mr Mutashu suggested that foreign exchange and Zim-dollar should be allowed to trade according to market forces.

“When we liberalise to say the market can now trade in US dollar or South African rand and so forth, it means that prices will certainly find their footing.

Unfortunately, it has happened in an environment where supply has also been scaling down,” he said.

Other economic analysts suggested that it was premature to make conclusions before the supporting Statutory Instrument was gazetted.

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