How the RBZ’s latest forex auction trading system is supposed to work?
According to RBZ, there will be an auction every Tuesday. Through their bank, a company or individual who wants forex, makes a bid for hard currency by 9AM on the day. They can make only one bid per day. If they bid twice, all their bids are rejected.
The winning bidder gets the money sent to their foreign currency bank account once the Zimdollar equivalent has been paid.
Importers on the priority list – essential supplies – get to be first in line for allotment.
At the end of each auction day, an average of the highest and lowest bids allotted is worked out. This becomes the prevailing exchange rate of the day. At close of each sale day, a report will be published on how much was auctioned, the bids on offer, and the weighted average rate.
The bidding platform uses the Reuters Foreign Currency Auction System, linked to the export payments and exchange control platforms. The central banks of Ghana and Uganda started using the Reuters Eikon auction app in 2016.
How much can one bid for?
To bid, you must have deep pockets. You cannot bid for less than US$50 000 per auction. This means the auction system is really for major players, shutting out individuals that may also need forex.
One can bid for a maximum of US$500 000 per auction. A factor to watch will be how much of the allotted bids is actually available. A bidder also needs to show an import invoice.
Where will the forex for auction come from?
The RBZ says the money to be auctioned will come from several sources. First are offshore facilities arranged by central bank. The bank doesn’t say if there are any new such facilities ready.
Another source is the forex brought in by exporters. When an exporter has been paid for goods they sell abroad, they are required to sell their forex onto the official market within 30 days. The bank also anticipates that holders of free funds will also use the auction to sell their forex on the market.
Does this happen in other countries?
Angola, Egypt and Ghana are among economies that use variations of the auction system. Angola, in 2018, stopped controlling the exchange rate and started auctions. This allowed the Kwanza to depreciate. The auctions began once weekly, then three times a week. They are now held daily.
Ghana also has an auction system. However, what is notable is transparency.
The Bank of Ghana has already released a calendar telling the market how much it intends to sell in its forward auctions for 2020; a total of US$715 million is planned for its auctions this year.
What about prices?
Shops are now required to display prices of goods and services in both USD and in Zimdollars at the ruling auction rate for the week.