Connect with us

Support The NewsHawks

Economy

Unintended consequences of new forex rules spook the market

Published

on

WHILE the Reserve Bank of Zimbabwe says Statutory Instrument 127 of 2021 was introduced to curb the abuse of foreign currency sourced from the official auction system, it has had devastating unintended consequences.

BRIDGET MANANAVIRE

Some of the repercussions of the intervention include a wave of price increases, meaning a spike in United States dollar inflation, as well as an increase in demand for foreign currency on the official auction, which will worsen delays in disbursements or lead to a sharp increase in the rate.

Industry said the statutory instrument will also deprive companies of what had become their main source of foreign currency. SI 127 of 2021 has also sparked some legal challenges.

The statutory instrument has led to renewed foreign currency market volatility as traders, both formal and informal, and shops are looking for arbitrage opportunities to avoid exchange rate-related losses.

Wealth and asset managers have also expressed worry at the possible reversal of the recent long period of exchange rate and price stability.

The RBZ has however justified the move, saying: “The use of parallel exchange rates of above 100, for example, on funds obtained from the auction at ZW$85 to US$1 is not good for the economy and consumers. It is these anomalies or arbitrage opportunities that the SI is designed to deal with”.

“The SI is an essential means of enforcing compliance which is necessary for continued stability.”

Businesses were given two weeks to regularise their systems in compliance with the SI on the receipting of goods and services in either foreign currency or local currency.

The central bank added that SI 127 of 2021 was not designed to harm business but to provide a level playing field for companies and to protect consumers, while clarifying that the use of foreign currency for the payment of goods and services would still be allowed as per SI 85 of 2020.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Advertisement

Popular