Nearly US$140 million allotted on the forex auction

Almost US$140 million has been allotted since the introduction of the foreign currency exchange auction system by the Reserve Bank of Zimbabwe (RBZ) two months ago.

In response to the volatility in the pricing of goods and services owing to the rising parallel exchange rate premium, the central bank in June replaced the fixed exchange rate system, which had the domestic currency pegged at ZW$25 per US dollar, with a foreign exchange auction system.

The latest exchange rate between the greenback and the Zimbabwe dollar is. US$1: ZWL$82, 5608, according to last Tuesday’s action results.

“Since its introduction (forex auction) on 23 June 2020, a total of US$137.4 million has been allotted against bids for US$157.8 million at the end of 9th auction on 18 August 2020,” said RBZ governor, John Mangudya, in his 2020 mid-term monetary policy statement issued last Friday.

“Effectively the auction system has to date served 87.1% of the formal foreign exchange market demand. Total foreign currency allotments have ranged between US$10.3 million and US$18.8 million per auction.”

Mangudya said the foreign exchange auction system had “greatly” assisted in improving transparency in the foreign currency market while also facilitating 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 elaborated.

“The dispersion 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.”

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