Feature: Forex Crackdown: A Case of Wind Chasing

BY TATIRA ZWINOIRA

The director general of the Financial Intelligence Unit (FIU), Oliver Chiperesa, revealed that 206 companies have been hit with administrative sanctions for manipulating the exchange rate.

Chiperesa made the revelation in an article published last Sunday in the public weekly, The Sunday Mail.

The administrative penalties result from companies preferring to use the parallel exchange rate of US$1 for $250 rather than the central banks’ auction rate of US$1 for $127.48.

Indeed, for most businesses, the forex auction rate is not an appropriate price discovery mechanism for the local currency due to the controls put in place by the Reserve Bank of Zimbabwe (RBZ).

Therefore, many businesses turn to the parallel exchange rate to preserve the value of their goods and services as they believe it reflects the true value of the Zimbabwean dollar since the RBZ does not control it.

“Obviously, when we consider following the law as a business.

“We encourage our members to operate within the bounds of the law.

“But getting to the specific issue of product pricing, obviously because we know that some of our members are getting money, i.e. US dollars, from the auction and they should fix the price at the official exchange rate”.

In an interview, Confederation of Zimbabwe Industries (CZI) President Kurai Matsheza said, “But some of our members actually have to go to the parallel market to find their funds. So we understand that there is some mixing (between official and parallel exchange rates) that has to happen because when they get that money the cost is higher than at auction.

Statutory Instrument 127 of 2021 gave the central bank the power to impose fines on individuals or companies that manipulate exchange rates through fines, civil penalties, and even jail time.

However, some companies use Section 3, Subsection 1, to justify using the parallel market exchange rate.

This part reads as follows: “A natural or legal person is guilty of a civil offense if he uses, without an exchange control authority, foreign currency obtained directly or indirectly from an auction of foreign currency or an authorized dealer for a purpose other than that specified in the application for participation in the auction or in the request for foreign currency.

This means that only those accessing foreign currency from the RBZ auction are eligible for a fine or sanction if found to be using parallel exchange rates instead of the official rate.

Thus, a majority of companies continue to abuse the exchange rate because most companies, which are not exporters, do not source foreign currencies from forex auctions.

Additionally, research by the Food Security Branch of the United States Agency for International Development has shown that the US dollar has now become the preferred trading currency and most products and services are denominated in dollars. Americans.

This allows businesses to avoid tying their prices to the parallel exchange rate since the US dollar is an acceptable legal currency.

“Official and parallel market currency exchange rates jumped 10% in February compared to January,” reads its February-September food security outlook for 2022.

“In early February, the US dollar was trading as high as $240 on the parallel market, more than double the official exchange rate.

“Parallel market exchange rates are the main drivers of Zimdollar price increases in the formal and informal sectors.”

Economist Prosper Chitambara said arresting businesses, while justified, was not the right move to deal with disparities in official and parallel exchange rates.

“I think the idea of ​​shutting down companies is not the right move given that most companies source some of their currency needs and in some cases more of it from the black market. “, did he declare.

“So I think it will weaken business confidence and it could actually have negative outcomes that won’t be good for the economy.”

Without easy access to foreign currency auctions and delays in awarding the greenback to winning bidders, the parallel foreign exchange market will remain a reliable source of US dollars.

The chief executive of the Zimbabwe National Chamber of Commerce, Chris Mugaga, said that given the number of people using the parallel exchange rate, it would be impossible to stop or fine everyone.

“There must be a market exchange rate that reflects market forces.

As long as market exchange rates (official and parallel) get closer and price discovery improves, it is obvious that the black market will die a natural death,” he said.

The reintroduction of the local currency in June 2019 without significant market confidence, foreign currency or commodity support accelerated the gap between official and parallel exchange rates.

In this regard, businesses today often prefer the parallel exchange rate as it guarantees access to foreign currencies, offers a premium and preserves the value of their goods or services.

  • This article first appeared in the Weekly Digest, an AMH digital publication.

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