The Zimbabwe dollar weakened by approximately 34 percent on Friday, its biggest fall in months following the decision by authorities to implement a “pure” Dutch auction system.
Following a massive currency depreciation on the widely used parallel market, the Zimbabwe government announced a raft of measures including fine-tuning the widely criticised auction system into a pure Dutch auction system.
Further, the central bank will now announce the envelope of foreign currency available for sale in the next auction.
“The Foreign Exchange Auction System will be further fine-tuned and will now auction a pre-announced envelope on a pure Dutch auction basis,” read part of the measures announced by Finance and Economic Development Minister Mthuli Ncube.
The fall of the local currency is in line with what RBZ governor Dr John Mangudya was quoted saying on Tuesday.
In an interview with The Chronicle, Dr Mangudya said the central bank’s expectation is that “there will be a narrowing of the official exchange range and the parallel market rates due to the refinement of the auction system. Therefore, by the end of the month, consumers should expect to witness a modicum of stability in prices of basic commodities.”
“As announced last week, beginning tomorrow (Tuesday) the auction system will start using a pre-announced envelope on a pure Dutch auction basis. What it means is, when bids reach US$15 million, no more money will be allocated. By doing so we are reducing the premium in the market,” said Dr Mangudya.
Tuesday’s auction saw approximately US$60 million worth of bids being received but the central bank only allotted US$14,1 million.
This comes as President Mnangagwa queried the increase in bids to approximately US$30 million at a time most businesses are selling in US dollars.
When forex sales were low, bids were around US$20 million according to the President.
“Fourth and most exasperatingly, when 20 percent of our transactions were conducted in foreign currency, and 80 percent in local currency, the demand for foreign exchange at the auction averaged US$20 million weekly,” he said.
“Today, when we find ourselves in 80-20 percent reverse transaction equation in favour of foreign currency, the demand for foreign exchange at the same auction, and by the same Business now directly selling more wares in United States dollars, has risen to US$30 million a week! How does one explain such a paradox?”
The exchange rate tumbled from last week’s rate of $1,404 per greenback to $1,888 per US$1.
The highest bid received was $2,001 while the lowest bid rate allotted was $1,801.
This means all bids below $1,801 went back empty-handed.