eBusiness Weekly
Now that the limits in the interbank market have been pushed up sharply again it appears that another new policy is to allow the interbank market to assume ever greater dominance over both the auctions, which still handle far more cash, and the black market where premiums and margins are both decreasing sharply.
Some very delicate footwork is going to be needed by the authorities when it comes to setting interbank limits and listing what interbank foreign currency can actually be used for. The goal is obvious, to reach the stage where the interbank market is the totally dominant market setting exchange rates, as happens in most countries.
Most central banks do have some influence in smoothing the path of an interbank market, choosing when to buy their Government’s requirements of foreign currency and when to sell their surpluses. But this does not even allow manipulation of even the shorter end of medium term trends, and can only be used to remove daily spikes in supply and demand.
The traditionalist, and textbook response to inflation, the 200 percent minimum interest rate and the mopping up of loose Zimbabwe dollars, largely through of all things the sale of a small proportion of monthly gold production in the form of coins, have been working better than all the rule making, although that rule making has not been in vain. It has created some of the pressures that make the high interest rate and the coin sales work.
Zimbabwe’s fundamentals are generally in good shape. The budget almost balances and fiscal discipline is tight, and getting tighter as those who overprice on Government contracts are now discovering. The current account is in surplus, so inflows of foreign currency are greater than outflows.
The one remaining problem is that imports exceed exports, but not greatly and by a diminishing amount, and that is where the pressure point still exists since the auctions are linked to a percentage of exports. Net exporters do use their own currency for their imports, but the fact that net exporters are continuing to hard more than they spend in nostro accounts does mean that some of the non-trade inflows are needed for trade.
That has been the one weakness, and is why it is important that measures that bring near convergence between official and black markets are continued, so some of the non-trade inflows become available to importers through official channels.
