Auction Trading System to Work When Rate Determined by Market Forces: ZIMCODD

Auction Trading System to Work When Rate Determined by Market Forces: ZIMCODD

Zimbabwe Coalition on Debt and Development (ZIMCODD) says the auction trading system, introduced by the central bank, will only work when the central bank is sincere and allows the rate to be determined by the market forces.

The Central bank introduced the foreign currency auction trading system, which started operating this week after a gap elapsed between the USD1: 25RTGS official rate and the USD1:75RTGS parallel market rate.

“It is also commendable that the Central Bank will give preference to the import priority list. It is, however, ZIMCODD’s view that the bank should pay directly to the suppliers of raw materials and equipment to avoid manipulation and for easy of monitoring,” the organisation says.

“Over and above the measures in place, the RBZ should always be on the lookout for the abuse of the facility.”

Discussing on the matter at hand, the Confederation of Zimbabwe Industries (CZI) in the Foreign Currency Auction Policy Response Paper expresses the view that for the auction to work and to influence the price of foreign exchange across the economy it must be perceived to be credible.

“We know that the auction market in 2004 degenerated into an allocation system, not an auction. So the question is how can we ensure that the auction is perceived by the market as a credible auction?” the organisation says.

“Perhaps the most important thing is to ensure that indeed the highest bidder wins and this may be complemented by a small independent team of observers at each auction to validate auction results.”

“In order for the auction to enjoy political support, it is important that the market exchange rate, once discovered, remains stable,” CZI goes on to say.

The auction which started on Tuesday this week will be conducted on a weekly basis.

The first day of the action trading left the United States Dollar trading at an average rate of ZWL$57.3582.

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