Parallel market rates hurt the economy: Cross
Michael Magoronga, commercial correspondent
The GOVERNMENT should take bold steps to tackle continued speculative activity in the parallel market whose obscene exchange rates are hurting the entire economy, the economist and former Reserve Bank of Zimbabwe adviser said ( RBZ), Mr. Eddie Cross.
His feelings come at a time when the black market exchange rate, at around US $ 1: Z $ 200, is nearly double the official exchange rate last set at US $ 1: 108 when the system foreign currency auction went on vacation on December 14. , 2021.
Rising parallel market exchange rates have prompted some companies, although they have access to cheap currencies through the auction system, to increase the prices of basic goods and services.
Consumers have also expressed concern over the recent price spike, which has almost dampened the Christmas and New Years holiday season as it nibbles away disposable income. The Treasury said wild exchange rates and price increases are not justified given stable economic fundamentals and tight money supply controls.
The Ministry of Finance and Economic Development therefore faces a daunting task in 2022 to cope with soaring black market exchange rates, which threatens the economic gains made so far, Cross said.
The government will need to take bold steps to hold the bull by the horns by trying to curb speculative economic behavior. This includes consideration of further liberalizing the foreign exchange market and increasing the volume of foreign exchange in the market, he suggested.
“We have a definite problem and, in fact, in my opinion, this is the major problem facing the Department of Finance in 2022,” said Mr Cross.
“The only way to collapse what they call the BMR (black market rate), is to actually open up the foreign exchange market and increase the volume of foreign currency traded.”
While the going exchange rate could benefit many businesses and traders who may frown, the net effect is negative for the economy as a whole as it tends to make workers’ wages unnecessary. Already, public sector workers are itching and pushing for forex payments, citing inflationary pressures, which are eroding their purchasing power.
“Some banks are not in favor of it and the majority of companies are making so much money out of this totally distorted situation,” said Mr. Cross.
âSo much so that they don’t want changes to be made. The Ministry of Finance has a very difficult job in its hands as it has to practically decide what is best for the country with the approval of the powers that be of course. “
Last year, the government issued regulations to force businesses to match the prices of goods and services to the official exchange rate and threatened to penalize those who refused to transact in local dollars.
According to Statutory Instrument 127 of 2021 on Presidential Powers (Temporary Measures), companies that misuse foreign currencies obtained through the auction currency exchange system will be heavily penalized.
Under the regulations, companies face a fine of $ 50,000 or the equivalent in foreign currency for refusing to accept payments in local currency at the official exchange rate. Financial institutions whose customers violate the regulations would also be fined.
However, the measures have done little to stem activity in the parallel market, which continues to thrive.
Industry leaders also added their voices in calling for adjustment of the auction system to ensure it helps price discovery and close the gap between formal and black market rates. .
While acknowledging these shortcomings, the business community said the auction system has become essential to support their operations, which saw more than 7,000 entities benefit from nearly US $ 2 billion allocated last year alone.