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The Zimbabwe dollar continued its dramatic climb in value yesterday, gaining more than 7 percent in the wholesale bankers auction to $5 395,96 to the US dollar, with far more US dollars on sale than the banks, which now supply almost all foreign currency, had the local currency to buy.
But the conditions in the auction markets over the last two weeks opens up a lot of opportunities to broaden the economy and allow ordinary people more access to foreign currency, since it appears that there is more available for sale than the present system can absorb after the reforms that turned off the taps for creating new flows of local currency.
Last week in a pair of wholesale banker auctions, the 19 commercial banks could only scrape up enough uncommitted local currency to buy a little under US$13 million of US$30 million on offer, and even that took two auctions, with the largest importers managing to find enough to buy less than US$900 000 of the US$5 million they could have bought. The bankers even had two auctions, a special second one arranged two days later with the huge piles of leftovers on sale.
Yesterday it was just the same. The banks only managed to buy US$4,127 million of the US$20 million the Ministry of Finance and Economic Development made available, and the really big importers could only scrape up enough local currency to buy just over US$580 000 of their US$5 million.
As can be seen, the 19 commercial banks have taken over from the retail auctions as the main supplier of foreign currency to importers, that is foreign currency over and above what many businesses now take in through their tills, a fair amount since around 70 percent of internal transactions by value are in foreign currency.
Those internal transactions are seeing a far larger slice of the retained foreign currency from net exporters now being used to buy stuff inside Zimbabwe, along with most of the diaspora remittances.
The huge change in the value of the Zimbabwe dollar has seen far more holders of foreign currency paying direct, rather than using the black market to convert US dollars to local currency.
Black market dealers are now offering less than many banks will pay for US dollars, although they are still to reduce the price of the US dollars they sell since they do not want to sell these for less than they paid for them a couple of weeks ago, or even last week.
With that illegal business now in crisis, it is possible to put in the boot and make a lot of dealers handle huge losses, and so abandon the market, and open doors to a lot more legal access to currency to those who need it.
We already have reached the point that any formal business that requires foreign currency for an approved purpose, basically imports, can just go to their bank and now we can go a bit further.
Most people need some foreign currency.
All petroleum fuels, or at least all the petrol, diesel and gas that ordinary people have access to, is sold in foreign currency.
Many landlords, especially with the convulsions in exchange rates recently, demand rents in foreign currency.
Quite a lot of parents find it useful to build up a small stock of US dollars each month so when fees day come around they have the money. Fees are generally set in US dollars although can legally be paid in local currency, but at the latest conversion rate.
There were good reasons to allow the petroleum fuels market to go foreign currency in effect. While Zimbabwe has a net inflow of foreign currency, that is more comes in than goes out, when it comes to the trade balance we import a bit more than we export. Other inflows, largely diaspora remittances, fill the gap and some more that exists between imports and exports.
In effect, our largest single import, petroleum fuels, has a large component funded from sources not connected with export earnings.
While net exporters will buy fuel with export earnings, and a lot of local businesses will commit part of their US dollar till collections to fuel, most private people either need a relative sending them money or have to buy on the black market, with their dealer probably buying from someone with the relative.
It could be possible for everyone to have a right to buy some foreign currency each month from their bank. To keep controls in place and to avoid a nightmare of kilometre-long queues outside banks, the concession would be limited to online banking for those with both local currency and FCA accounts.
But most bank clients now do have the two accounts. All civil servants get a modest allowance in foreign currency through their bank, and they are easily the largest group of employees.
All farmers that have gone at least partially commercial, that is they sell crops to a contractor or GMB or Cottco or similar, must have two accounts.
Many in the formal sector now need two as more companies follow the lead of the civil service.
The top end of the self-employed, the professionals and the like, automatically have two, and the lower end, the informal sector, is building up its percentage of the banked, and those also must already have two accounts.
Online banking is now the norm, even if the person is using their phone or borrowing a computer. So the infrastructure is in place and just needs some software, including software that keeps tabs on those who have accounts with more than one bank.
The authorities could start with modest limits, perhaps even just US$100 a month, to test the waters. But even this would allow a lot of people now having to buy on the black market to start going legal, at least for much of what they need, especially when you remember that spouses have separate bank accounts.
If it works, and if abuses can be eliminated, we can then see what the result is in demand and how badly it damages the black market. If the results are all positive then the limits can be reviewed.
It would also have a major effect on building up the confidence in the new bank-led foreign currency systems and the growing need for more local currency in many swathes of the economy.
Eventually we will reach the point when all dealings are in local currency as a matter of course, like what we see in South Africa, and where when you have a need to buy foreign currency, to go on holiday or something, you just stroll into your bank, pay their fee and get your cash.
But we still have to deal with what is happening now, where we are coming from, and this sort of move could not only fill a need, legally, but also help build the confidence that the move towards the normality most countries enjoy requires.
Online Reporter