eBusiness Weekly
After remaining reasonably stable for a couple of months, the same months that have seen the auction rate drift to a little over $138 to the US dollar and thus narrowing the premium, the black market rate is suddenly shifting this week.
Besides outright manipulation by the leading figures in that market, and they can manipulate by hold back from resale some of the cash they collect through the multi-layered system that rests on the street dealers, there are other possible causes.
First the Reserve Bank of Zimbabwe has tightened the auctions and moved that system more into a freer market. Essentially those who were abusing the system are excluded while even the legitimate buyers are having to push up their bids as the Reserve Bank cuts back on what is available each week.
Average allotments have been in around US$36 million a week instead of well over US$40 million a week, yet exports are rising.
The best guess in the market, since the Reserve Bank does not really discuss some issues, is that the authorities are using some of the cash they receive from surrendered export earnings to eliminate backlogs.
These backlogs are being eliminated and so unless the Reserve Bank has a secret source of funds suggests that this may well be the case.
So some of those who were looking for bargain currency, and so bidding on the low side, are not getting their auction money.
This is unlikely to be a major cause though since the number of valid bids that are not allotted is very low, and is more suggestive of the Reserve Bank telling bidders not to be daft when they write their bid down, rather than trying to limit allotments.
The second reason is that there is quite a lot of inflation in global markets, with the prices of a range of raw materials especially going up sharply.
The recovery from the restrictions before the Covid-19 pandemic was brought under control and effectively managed, coupled with the conflict in Ukraine, has seen grain prices and petroleum prices rise.
Crude oil prices have more than doubled in recent months but are stabilising and even inching down as everyone takes a deep breath and Saudi Arabia, the major swing producer, has indicated that it will now pump more crude since the prices have reached the sort of level this critical country reckons are still affordable without consumption going south again.
World grain prices are not so adjustable. Ukraine and Russia are major wheat and sunflower seed exporters and there are those who wonder if Ukraine will even harvest enough for its own needs this year.
Some of these warnings are part of the pressure being put on Governments to try and obtain a cease fire and a return to normality in Ukraine, but they are sufficiently probable to make markets nervous. In any case there are those who want to stock up in advance, just in case, and that puts further pressure on wheat and sunflower prices.
So we have some Zimbabwean importers needing more money if they are to retain their present levels of imports, or more precisely the levels they were seeing at the beginning of the year.
Unless they can increase their bids and allotments on the auction they will be dipping into the back market.
More importantly there are the private buyers of black market currency, basically the motorists, who are having to buy more.
Petrol and diesel prices were rising before the Government stepped in and reduced its take in taxes, and are still significantly higher than they were at the beginning of the year.
Yet the number of cars on the road and the amount of driving appear to be little diminished.
This suggests that motorists have factored in the increase and as most have to pay in foreign currency, the local currency fuel being very modest in quantity, this means they have to buy more foreign currency, again from the illegal dealers.
There were a few lucky enough to win through to the front of the queue when the Reserve Bank allowed bureaux de change to sell US$50 a week to individuals, but that has now been halted except for the very old and those living with disabilities. So again there are more buyers in the black market and they need to buy more.
Besides these objective facts there is that continuing problem of what people expect.
Generally there is an expectation of a premium and too many buyers, as well as sellers, of black market currency tend to think this premium is some sort of natural law that cannot vary. So when the auction rate changes they think the black market rate will change by the same percentage.
It does not really matter if this thinking is right or wrong. What does matter is how people think it might be right or wrong, and at the moment many think that the percentage gap is fundamental.
The second issue is that the belief that the black market is a near perfect market is not correct.
It is a fairly small market and although there vast numbers scraping a tiny income on the fringes of the market, the street dealers, there are far fewer further up the food chain. This is particularly the case when it comes to deals.
Many businesses and others using the black market are not trying to set prices. They find out what the day’s price is and then make their decisions, but these do not fix the rates.
The rates are fixed by a smaller group of active dealers who buy from the people who buy from the street dealers as all those small denomination US dollar banknotes are sold to street dealers sitting on a pavement or pacing through a bus terminus.
The accumulators can therefore influence the prices by creating surpluses or scarcities and there views can often be turned into fact.
You get major dealers refusing to sell foreign currency until the prices reaches what they think is the “correct” price, and many are rich enough to lower their income for a couple of weeks to achieve the greater profit later on.
Street dealers just get an SMS or WhatsApp message daily giving them the buy rate for a US dollar that some person is trying to sell them.
The messages come from high up the food chain, from the people who will provide the local currency notes to the street dealers and who buy the US dollar bank notes from these dealers. Usually this group are just conduits for the major dealers.
It is difficult to control the market, as the Reserve Bank of Zimbabwe has found. Going for the street dealers achieves nothing.
Trying to hit the accumulators and more important dealers higher up seemed more sensible, but despite some stiff civil penalties and freezing of bank accounts, the market still exists and still flourishes in its own way.
