Delays currently being experienced by firms in accessing foreign currency allotted to them at the auction trading system are teething problems and the central bank is working flat out to smoothen the process, an official familiar with the developments has said.
The foreign currency auction trading system, introduced on the 3rd of June this year, has so far allotted $434,3 million, bringing relief to the business sector, long starved of reasonably priced foreign currency from formal channels.
While before the introduction of the auction trading system, the exchange rate of the Zimbabwe dollar against the US dollar was volatile, reaching high levels of $120, it has since stabilised at below $82 for more than two months.
The business community has acknowledged the positivity brought by the auction system, with Innscor, for example, saying the trading environment for the three months to September 2020 “was underpinned by improved business and consumer confidence arising from a relatively stable local currency”.
“The introduction of the foreign currency auction system and Statutory Instrument 185 of 2020 allowed for the implementation of precise pricing strategies, enhanced planning capability, improved capital allocation and value preservation for the group’s business units; these policy measures are extremely encouraging,” reads part of Innscor’s trading update released last week.
Another Zimbabwe Stock Exchange-listed entity Axia Corporation, in its latest trading update for the three months to September 2020, shared the same sentiments, describing the introduction of the auction trading system as encouraging as it “played a critical role in stabilising the exchange rate which has helped businesses to plan”.
“The group welcomes the current stability in the exchange rate and is hopeful that the auction system will continue to be adapted to ensure that payments to foreign suppliers can be fully met.”
But like any new system, the auction has its own challenges, chief among them the delays currently being faced by businesses in accessing allotted foreign currency.
Business executives who spoke to this publication raised concern that despite having been successful in getting funds allotted at the auction, it was now taking several weeks before the funds can be transferred into their accounts.
While the Reserve Bank of Zimbabwe has said it receives adequate foreign currency from 30 percent surrenders from exporters and 20 percent from domestic foreign currency deposits, the process flow of getting the funds from private banks to the central bank is taking too long.
According to Professor Ashok Chakravarti a member of the central bank’s monetary policy committee (MPC) the delays are a result of clearing issues between banks themselves as well as with the central bank.
He said the clearance for nostros, for example, has to go through New York and with Zimbabwe having few correspondent banking relationships, the process is taking longer than necessary.
“That clearance process can take some time because, in the case of nostros, some of this clearance has to be done through New York and we don’t have many correspondent relationships and the issues of sanctions, all these things cause delays.
“So the flow of foreign currency is a bit slow. The money is there but it takes some time for all this money to flow through the whole system,” said Prof Chakravarti.
He said the amount of foreign currency allotted at the auction system has significantly increased from an average US$15 million at the start to more than US$25 million and this comes with its challenges.
Trust issues amongst banks in handling foreign currency transfers could also be another factor affecting the smooth flow of funds, according to market watchers.
The central bank, working with banks, is however working on smoothening the whole payment system, according to Prof Chakravarti.
“It takes some time; in economics, we call these challenges friction in the system which gradually will have to be dealt with.”