The dramatic changes in foreign currency dealings over the last couple of weeks present the interesting probability that businesses are going to all have to act legally when buying and selling foreign currency.
Two factors are bringing about this creation of a normal business environment, the sort that almost every business in every country of the world, operates within. The first is the launch of an official market that allows the Zimbabwe dollar, in so far as it is used for trading, to float freely.
The auction system is built around matching export earnings to import requirements, with two modest adaptations. First not all export earnings go to auction; the Reserve Bank of Zimbabwe retains a block of them, but is now compensating exporters at the auction rate, so the appalling unfairness we have seen is over.
That RBZ share of foreign currency funds fuel and bulk grain imports, plus the more modest requirements of the Government, which is now, at long last, looking at repaying some of our national loans, if only at a very modest rate. Government requirements now also include those very modest and temporary US dollar allowances paid to civil servants and civil servant pensioners.
But the important point is that exporters now get, for the portion of their earning they do not retain in nostro accounts, exactly what they would get if they went to auction with everything.
The second and far smaller adaptation is the continued use of the import priority list. This might create a bit of friction between commerce, which likes importing goods for resale, and industry, which really wants everything on shop shelf having at least some local content. The point is that there can be no united front on this matter, so the RBZ as umpire can call the shots.
Considering the vast inequality in holdings of liquid local currency funds, this particular measure has to be retained. Otherwise we would see a significant fraction of our export earnings being burned up in luxuries and products for the rich, which in turn would make importers of essential or even just ordinarily desirable goods, pay a lot more. And there would be no protection for Zimbabwean manufacturing.
This is one of the reasons that any pressure for redollarisation comes from commerce and consumers, and not from industry. Manufacturers remember how the absence of a local currency almost killed their businesses as shops filled with consumer goods made in other countries and trucked in. Industrialists complained about what amounted to consumer subsidies built around what was a de facto frozen exchange rate, 1-1, while their main foreign competitors were able to benefit from a flexible exchange rate that matched reality.
Consumers, incidentally, should understand that they only won under dollarisation because the First Republic, being run by master printers, was ready to create fake US dollars and pretend they were real. So incomes were far higher than reality would dictate, and as in all schemes built on quicksand eventually collapsed.
The second reason why the official foreign currency market is winning is that the RBZ and Ministry of Finance and Economic Development are finally taking effective action against the black market. First demand has dropped.
Good old market forces are moving major importers into the auction market, which is unlike its interbank predecessor a real market, not a managed set-up.
Secondly the authorities, having eschewed the printing presses, are now determined to stop the private sector printing money as well. Liquidity was being created in the mobile money sector, probably accidentally rather than by design, but billions of new dollars were appearing out of nowhere. Treating mobile money providers like banks does make sense, as they are now simple banks, rather than just providers of a basic transfer service.
This reform of mobile money, and bring providers under bank rules, also will eliminate the anonymity that this sector allowed, an anonymity that did not matter when people were using the systems to transfer small sums to recipients who would cash out on receipt, but did matter when recipients were instead holding their balances within the system and making electronic transfers themselves.
The only big recipients now, the merchants, have to wheel their incoming mobile cash through a bank account to spend it. And the RBZ can keep an eye, in real time, on bank balances and bank account to bank account payments.
Presumably as the mobile money operators upgrade their systems to comply with the March regulations that effectively moved them into the banking sector, we will see merchant accounts being restored to two-way traffic, with some limitations, although the small agents are likely to be let in the cold, perhaps for ever.
So suddenly the auction system becomes the setter of real rates. Already the cash-cash black market rate has fallen to the auction rate, and the mobile rate is falling.
There will probably always be a modest premium for free funds, but that will be fed through bureaux de change and will not be very much of a premium, more like what banks offer. But this will not be set by decree, more by using market forces after ensuring that everything is out in the open and by controlling liquidity, again through market forces.
One of the smarter introductions this week were those new instruments, to be bought and redeemed in local currency but linked in redemption value to the exchange rate and offering a modest interest of 5 percent.
Those instruments are designed, and will probably succeed, in offering very liquid individuals and companies a far safer, more secure and legal method of pegging their spare cash to the US dollar, without the risk of confiscation, robbery and even of rats easting bank notes. That again will reduce demand within the black market, and this drop in demand from importers and those seeking security will bring down the rates, probably to something close to the auction rate.
The dual approach, of putting place proper markets and then hitting the demand in the black market and hitting the liquidity in the black market should make the more efficient banking sector the winner. Direct dealers, like banks, will have lower costs than those who rely on two tiers of middlemen, the street runners and the agents who mass together the little transactions.
All this will require businesses to start thinking their pricing strategies and, critically, their costs. The wide range of bid prices at the auction have shown that many have little idea of how to bid.
The RBZ probably has to tighten up on underbidding, simply not giving allotments to those who miss the cut rather than using pro rata allotments.
Overbidding will be defeated by opening up competition more, by making sole agencies illegal for example if you want to nail the pharmaceutical importers, so those who do not care what the final retail price is will find out that it matters a lot more than they can imagine.
Once final users have a real choice they will match price and quality and make rational choices.
Market forces are a wonderful way of establishing prices, but you need real markets. The business sectors were correct in demanding that the RBZ puts in place a real market for foreign currency, and they are right to demand that this remains a real market and that improvements that may be become necessary are implemented.
But at the same time the business sectors are going to have to accept that they too are subject to market forces, and that even in a small economy it is possible to avoid monopolies, near monopolies and combinations. Even the EU and the USA have taken effective action against combinations and price-fixing agreements, so no one can complain if the Zimbabwean authorities do likewise.