Forex auction helps businesses settle legacy debts

THE introduction of the foreign currency auction trading system has created a platform for businesses to settle their legacy debts while ensuring continued supply of critical raw materials, an industry expert has said.

Due to depressed capacity utilisation in the local manufacturing sector value chain, some companies were procuring raw materials from foreign markets as far as Asia and Europe, among others.

Towards the end of June this year, the Reserve Bank of Zimbabwe (RBZ) introduced the weekly foreign currency auction trading system replacing the fixed exchange rate of US$1:$25.

Since its introduction, the exchange rate has brought some stability in the financial services sector.

Speaking during a ZBCtv programme called “Market Update”, Zimbabwe National Chamber of Commerce (ZNCC) past president Davison Norupiri said:

“This foreign currency auction system has actually tamed the black market; we used to have our exchange rate going up daily and at times twice or three times a day.

“But it has really stabilised at the moment as a result of that (forex auction system). We have also seen quite a number of prices of goods also coming down because formal businesses were now pricing their goods using the informal market rate plus a premium.”

Norupiri said the quoting of prices using the parallel market rates was causing a lot of challenges as far as pricing is concerned.

“We now have a stable situation now both on pricing and exchange rate.

“The introduction of this foreign currency auction system has also helped very much on corporates especially those that are formal businesses, they can actually make sure that they can pay their legacy debts whatever they owe as well as ensure that they get supplies from their foreign suppliers and order on time,” said Norupiri.

He said owing to the weekly foreign currency auction trading system the formal sector has now been oiled regarding their operations.

“So, corporates have started functioning and are now working very well because they were relying very much on black market, which was also not good as far as competitiveness is concerned,” he said.

The Bankers Association of Zimbabwe (BAZ) has welcomed the foreign exchange auction trading system saying the initiative stabilises the exchange rate while also bringing transparency and efficiency in the trading of forex in the formal market.-businessweekly.co.zw