What the CZI said about the Zimdollar and the RBZ response

We highlight the three main pillars of policy focus that are needed urgently (these are not in the form of Sls, punishments and blame allocation)

1. Restoring trust and credibility of the ZWL by ensuring it is the preferred medium of exchange and a credible store of value.
2. Liberalising the forex market either through immediate reform of the auction to become a true Dutch Auction System in both principle and practice or create a separate interbank market that has the latitude to discover prices or launching a ZSE forex trading counter
3. Immediately embark on the mobilisation of foreign reserves to back to back the local currency before retiring the multi-currency regime.

Chronology of CZI submissions on currency stabilisation

The chronology of our engagements on currency in the most recent past includes the proposals to establish the auction but to run it as a true Dutch Auction alongside papers on the precautions needed.

We attach here the paper we submitted when SI127 was promulgated and the comparative analysis of auction systems both of which highlight what has gone wrong with what was supposed to be a transitional but efficient price discovery mechanism to take us to the desired destination of a liberalised foreign exchange market.

• A Comparative Analysis of Auction Systems
• Industry Response to SI 127
• Ideas on SDRS

CZI key recommendations to rescue the current situation

1. The auction should be suspended until the backlog is cleared and published as such
2. The Auction requires independent supervision along with the RBZ. This can include a Chartered Accountancy Firm and a professional registered auctioneer. This serves to address the rapid trust injection required to stabilize the Z$
3. Allow the currency auction to perform a price discovery role for the efficient allocation of foreign currency. This implies true Dutch Auction Principals as originally envisaged are implemented. The highest bids get full allocation within the regulated limits. This will curb abuse of the auction by unscrupulous players in the market, as well as eliminate the premiums and discounts being applied on the official rate. It would further increase flows of foreign currency into the formal system through the participation of willing sellers.
4. Auction what is adjudged independently to be available.
5. Foreign currency retentions must be financed through the budget.
6. Banks must encourage exporters to freely set reserve prices and sell their foreign currency on the auction system.
7. Policy must do away with the priority list and liberalise the market.
8. High level multi-sectoral meeting that must find a solution for agricultural financing. Banks CEO’s, RBZ, Ministry of Agriculture and Ministry of Finance must be closed in a room in Vic Falls until they find a solution that removes the burden of funding agriculture on printing money.
9. Tight control of money supply through holding constant the stock of money circulating in the economy and implementing reserve and broad money targeting.
10. Suspension of all quasi-fiscal activities which have an effect of increasing money supply growth and creating market distortions or arbitrage opportunities

Continued next page

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