Bureaux de change given leeway to increase exchange rates

As part of measures to enhance foreign currency trading by bureaux de change, the Reserve Bank of Zimbabwe (RBZ) has given them the green light to further increase their exchange rates above the government-approved auction rate.

The United States dollar is currently trading at 1:82, 6 against the Zimbabwe dollar according to last Tuesday’s auction results.

“The Bank (RBZ) is further liberalising the activities of bureaux de change to enable them to enhance their business by increasing the exchange rate spread from the current 3.5% to up to 5.0% above the auction rate,” said RBZ governor, John Mangudya.

The apex bank chief was presenting his 2020 mid-term monetary policy statement last Friday.

The leeway granted to the bureaux de change comes at a time when the gap between the formal and parallel market exchange rates has significantly narrowed.

The parallel market exchange rate fell from the range of ZWL$95 to ZWL$120: US$ at the commencement of the auction system in June to the current range of ZWL$85 to ZWL$110. “The parallel exchange rate premiums have thus plummeted from about 300% before the introduction of the auction system to the international known levels of between 5 to 15% as of the second week of August 2020,” said Mangudya.

The difference between the highest and lowest bid rates on the auction system has been converging towards the weighted average exchange rate, while the parallel market premium has remained suppressed.

“The dispersion between the highest and lowest bid rates, which was around 75 points at the beginning of the auction had fallen to about 8 points after the ninth auction,” said Mangudya.

“The foreign exchange auction system has greatly assisted in improving transparency in the foreign currency market and has facilitated the discovery of a market-based exchange rate. In addition, the system has been critical in fostering exchange rate and price convergence over time.”

He added: “The bureaux de change will be required to sell at the auction at their reserve price, 80% of their balances held every Monday.”

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