Economic blogger Tinashe Murapata, also known as Baba Nyenyedzi, has said the government’s claim of sucking the Zimbabwe dollar from the market is rigged. He was commenting after the Zimbabwe dollar’s recent increase in value against the United States dollar a development the authorities attributed to the disappearance of the Zimbabwe dollar from the market. In a tweet seen by Pindula News, Murapata stated that the auction system is rigged. He warns that using the auction rate to determine the economy’s goods prices is gaming the system and that it will build up tension that will crash further the Zimbabwean dollar. He said:
When the maths doesn’t add up. In arithmetics, kids use their fingers or toes, beyond which it can’t. The figurative meaning is a lifelong lesson, the math must add up, in as real a fashion as one’s fingers and toe.
In an unprecedented move the RBZ managed exchange rate saw the ZWL gain in strength from 6926 to 6326. A 9.5% gain. In exchange rate calculation the denominator is always the last rate. In this case (6926-6326)/6326.
This, my dear countrymen, is a poison chalice.
The exchange rate appreciation calculation is done to show what the authorities are expecting in terms of prices in the economy. They expect prices to come down by 10%. Immediately.
This is a sleight of hand. Because on the Parallel Market, rates have remained stubbornly above 8000. Current stock on our selves is held at the PMR and never at the Auction rate.
The Auction market has a priority list and a very significant restriction, one cannot use borrowed funds to bid for currency. Hence, why the supporters of the auction always talk of reserve money or base money in the economy.
In March 2023, Reserve Money was $233bn. By now (June)it should be upwards of $800bn of which half is in American dollars and the other half ZWL. Meaning when RBZ claims the Auction sucked liquidity from the market of over $200bn it means half of ZWL base money was taken out of the market. That’s a significant amount, which if it was genuine who entail an appreciation of currency. But even at that never 10% in a week.
Growing up, my dad used to regale hunting stories when he was a boy. How to trap a wild rabbit that’s found itself escaping in its hole/burrow underground. In most instances it had an escape route. Meaning it enters in one hole and exits in another far off hole. To trap the rabbit you set a fire on the exit burrow.
Forgive me, if my story doesn’t live up to your personal hunting experiences. I am using my dad’s story as an illustration of how GOZ trapped business.
Under Mugabe, there was no hesitation to direct price controls in the goods and services market. Government would directly put up what businesses must charge. Failure of which, you were jailed.
The current regime, understood this doesn’t work. That’s not how you catch them out. Instead you smoke them out by giving business an Auction which is not an auction. Business buys into the auction and RBZ manages the rate to their desired outcome. What will business do, when the Auction rate goes to 4k or 3k?
I hope business is learning.
The auction is rigged. The claims of sucking liquidity is rigged.
If exporters surrender receipts are offered at the auction market. Buyers with ZWL bid for the USD. Therefore ZWL switches from one hand ( importer) to another hand or account ( exporter). This can happen with the same bank. Liquidity does not change.
How then can RBZ and it’s acolytes insipidly speak of the auction sucking liquidity out of the marketplace? It’s either GOZ or private sector offering exporters their ZWL. Unless RBZ or treasury Borrowed USD and offered to the market. Which is a much bigger problem and hole that got us into this mess in the first place.
What is happening is that the big exporters are not receiving their ZWL. But given ZWL credit notes indexed to the exchange rate. In effect building a ZWL backlog or debt that keeps track of auction rate. Akin to the digital gold coins.
Auction market at best is 13% of the import market. 87% occurs elsewhere. Using the Auction rate to determine the economy’s goods prices is gaming the system.
Kicking the can down the road builds pent up energy that will crash further the ZWL. Zimbabwe is under hyperinflation already. No one believes a currency appreciates in value under hyperinflation. It depreciates at a slower rate or stabilizes at the high rate. It doesn’t appreciate by 10% in a week!
Surreptitiously, the government is forcing full Dollarization as market players prefer trading in dollars than a rigged auction system.