Published: 17 May 2018

PEGGING the greenback to Real Time Gross Settlement (RTGS) balances and bond notes on a one-to-one basis does not reflect the true value of the US dollar, the Confederation of Zimbabwe Industries (CZI) has said.

In an exclusive interview with The Financial Gazette, CZI president Sifelani Jabangwe, who is on record calling for open market currency trading, said Zimbabweans had foreign currency under their beds and various other places but avoided bringing it to the bank for fear of value erosion.

"People don't want to trade their foreign currency at 1:1 because that is not the true value. Open market trading allows that money to come out. Right now, if you go to the black market, you can get any amount of money you want. So if we let foreign currency trade at the correct value, we should be seeing more of the money coming through," said Jabangwe.

He explained that the exchange rate mechanism being proposed by CZI will be at a premium that is lower than that offered on the black market. Under the proposed system, the banks would be the mediators between sellers and buyers.

"We believe the rate will be lower than the black market one because the current parallel market rate is carrying a usurious premium due to the illegality of the activities and the lack of transparency allows people to charge premiums they will not be able to get away with under open market trading," said Jabangwe.

He added that CZI is not proposing any specific rate as the market will determine that.

"Right now the black market is saying it is between 40 and 50 percent. But we believe that when we open the trade, it will not go anywhere near that because already people are trading; the system will not run away because the rate that we have right now has to do with the imbalance between the US dollar and money that has been created as a result of Treasury Bills that spawned unsupported RTGS dollars," he explained.

Jabangwe also opined that the proposed exchange system cannot be administered by the central bank because it is currently presiding over an inefficient foreign currency allocation system.

"We have seen it (central bank) trying but the system is not working partly because they are conferring a 1:1 rate of RTGS to US dollars whereas we now know that it cannot be on the basis that the RTGS dollars are  not tradable; so they will have to trade at some discount to the greenback and this is what the black market is doing," he said.

- fingaz