HARARE — The Reserve Bank of Zimbabwe (RBZ) has been unable to resume its Foreign Exchange Auction, a critical measure against inflation, since December 12, 2023, due to a severe shortage of foreign currency.
The suspension has left an undisclosed number of companies awaiting payments from the last auction, compelling many to resort to the parallel market. Consequently, the parallel market rate has surged to Z$32,000 against the US dollar, compared to the official rate of Z$21,000. On December 12, at the time of the last auction, the official rate stood at Z$5,903.
Introduced in June 2020, the Foreign Exchange Auction system aimed to mitigate the adverse effects of the parallel market on economic stability and provide a structured avenue for businesses to procure foreign currency. Despite the challenges, the system has been pivotal for businesses, allowing them to sustain and grow their operations in the global market.
RBZ Governor John Mangudya announced in January that the total cumulative allotments from the auction system have surpassed US$4 billion since its inception, primarily directed towards importing raw materials and machinery. In December alone, US$3.9 million was allocated to 228 companies under the Retail Auction, while US$12.8 million was distributed to 263 companies under the Wholesale Auction.
The total foreign exchange disbursements for December stood at US$685 million, with the majority, US$651 million, going to foreign currency accounts, followed by US$16.7 million for auction allotments, and US$17.6 million for the interbank market. The retail auction primarily funded raw materials and machinery, accounting for 58% of the allotments.
He insisted that the central bank remains committed to maintaining the auction system to support the productive sectors of the economy but has not shed light on why the system has been suspended.
Addressing the ongoing economic volatility, Finance Minister Mthuli Ncube acknowledged the currency instability’s impact on prices.
In an interview with Bloomberg at the weekend, he assured that the government is poised to intervene with measures to address these challenges. “We are aware that there is currency instability in the main, which then impacts prices,” Ncube stated. “As government, we will act.”
Zimbabwe’s economic history has been marked by periods of hyperinflation, which have had profound impacts on the country’s economy and its citizens. The most severe episode occurred from 2007 to 2009. This period of hyperinflation was characterized by the rapid devaluation of the Zimbabwean dollar and a collapse in the banking sector, leading to widespread poverty and a sharp decline in production across all sectors.
The government stopped printing the Zimbabwean currency in April 2009, and for a period, foreign currencies were used in the economy. In 2015, plans were announced to switch completely to the United States dollar by the end of the year. However, in June 2019, the Zimbabwean government reintroduced the Real Time Gross Settlement dollar (RTGS), known as the Zimbabwe dollar, and declared all foreign currency no longer legal tender. This move was followed by a rapid increase in inflation, reaching 175% by mid-July 2019.
By 2020, the annual inflation rate had soared above 500%, prompting the creation of a task force to address the currency problems. Despite these efforts, by July 2020, the annual inflation rate was estimated at 737%.
The introduction of the Foreign Exchange Auction system in June 2020 was an attempt to stabilize the currency and provide a reliable method for businesses to access foreign currency.
The recent inability of the Reserve Bank of Zimbabwe to resume the Foreign Exchange Auction since December 12, 2023, due to a lack of foreign currency, is a setback in the ongoing struggle against inflation.
