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In a late second wholesale auction for banks this week held yesterday afternoon, the bidding banks pushed up the value of the Zimbabwe dollar to $4 883,8208, with the local currency having now appreciated 30 percent in just 24 days since hitting its bottom on the June 20 auction.
Banks are now paying on average a little over $2 000 less for each US dollar since the value of the US dollar peaked on the June 20 auction at $6 926,5764. Yesterday’s auction saw the average cost of a US dollar for banks fall through that barrier, although Tuesday’s auction came close.
Yesterday, the eight successful banks bought between them US$4,845 million at prices ranging from $4 700 to $5 037,37. Two more banks which bid even lower had their bids for US$450 000 rejected as the Reserve Bank insists on keeping the range reasonably tight, with the bottom bid having to be at least around 90 percent of the top bid. This has seen some ultra-low bids in four of the last five auctions rejected.
The exchange rate between the US dollar and the Zimbabwe dollar is set purely by the 19 banks now. Once or twice a week they bid for a pool of US dollars made available by the Ministry of Finance and Economic Development from the 25 percent of export earnings the ministry buys from exporters.
On the other days the banks generate another weighted average, the interbank rate. Each bank has its own buy and sell rates for US dollars, which it sets each day. Those rates, plus the amount of foreign currency bought and sold, are sent to the Reserve Bank of Zimbabwe which enters the data into the formula to produce a weighted average. This places Zimbabwe in the same position as most countries where the commercial banking sector, through its daily dealings, finds the market price for all foreign currencies and so sets the value of the local currency. As is now the case in Zimbabwe, governments and even the central bank have no input.
Yesterday, as has been the case for the last five auctions, the Finance Ministry made US$20 million available for sale, and has now become the norm the banks could only find enough foreign currency to buy around a quarter. Each auction the ministry brings forward the leftovers from the last auction, the bulk of the pool, and tops it up with the modest purchases made at the last auction. The banks are now accepting that the Zimbabwe dollar is on a path of strengthening with the Thursday and yesterday interbank rates both showing rises in Zimbabwe dollar value since the Tuesday auction, whose weighted average provided the Wednesday interbank rate.
The trend had been for the cost of a US dollar on interbank rate to creep up slightly between auctions as those banks that held stocks of more expensive foreign currency tried to maintain their prices, but it now appears most banks accept that market forces cannot be gainsaid. It has become clear they need to sell what they have in stock to raise the local currency to buy more foreign currency.
The rate of appreciation in value of the Zimbabwe dollar is slowing slightly, the weighted average in yesterday’s auction being 2,3 percent stronger than the weighted average in the normal Tuesday auction and 2 percent higher than the interbank rate the banks generated yesterday morning.
Most Zimbabwe businesses now generate at least part of their foreign currency themselves, with even those with zero exports able to get some direct foreign currency payments from customers, usually net exporters with foreign currency in their bank accounts, those who get some of their pay in foreign currency, and those getting money from foreign residents.
But there are still requirements by many businesses to buy more foreign currency, and this is now coming from their banks. The old auction for the very large direct importers is now seeing sales of less than US$500 000 a week as businesses switch to their banks for their needs.
Online Reporter