Some Banks Buying USD Above Black Market Rates, Interbank Market Heating Up

It’s early days yet with all this ‘new Zim Dollar’ and forex ban stuff. However, today the exchange rate between local currency and other currencies like the USD is an interesting story.

The black market rate has fallen

When we say fallen we mean that you get less local currency per USD. At peak on the 25th of June, a few days ago, the black market rate was at 13.5 meaning you would get RTGS$13.50 for every US Dollar.

Today, the word on the streets is that the rate is around 8.5. This is a result of the recently announced currency ‘reforms.’

The interbank market heating up

The interesting stuff is happening in the interbank market though. Some banks are no longer being conservative in their bid to acquire foreign currency from the market.

First Capital Bank has the highest buying price we have seen so far. When we checked just after 12 noon, they were buying at 8.69560 and selling at 9.14160 giving a mid rate of about 8.9. This is above the general black market rate.

Of the banks we checked, FBC had the second highest rate. They were buying at 7.142 and selling at 7.5 which gives a mid rate of about 7.3. Considering the risks associated with the black market, this is a reasonable rate and can probably lure people away from the informal market.

Other banks are still being conservative

We didn’t check with all banks. However of the banks we checked with, the majority are still in the region they have been in the past few days. NMB Bank is around 6.5 so is ZB and Steward Bank, CBZ around 6.1…. The average rate on the interbank market according to the Reserve Bank of Zimbabwe at the time of publishing is 6.5432.

This shows that First Capital Bank and FBC are ahead of their peers by a big margin and their peers are pulling the average rate down. We expect the competition to increase though and this may cause the interbank market exchange rates to go even higher.

So what?

If true market activity starts to happen on the interbank market it may limit the black market effectively. Why would anyone risk changing currency on the black market when the rates on the official markets are good enough?

The flip side is still a problem. When one wants to access forex, can they readily buy it from the interbank market? The RBZ of course wants this to be true or at least for it to be perceived to be true. Their plan for this:

Increase supply of foreign currency into interbank foreign market by ensuring that at least 50% of the surrender portion of foreign currency is sold to the interbank market. This will be supplemented by the use of Letters of Credit (LCs) for the importation of essential commodities that include fuel, cooking oil, and wheat. The Bank has put in place LCs amounting to US$330 million for this purpose.

Exporters are mandated to surrender a portion of their forex earnings to the central bank for example manufacturers must sell 20% of export earnings to the RBZ and gold producers 45%. The central bank is saying they will in turn sell at least 50% of that money through the interbank market instead of holding on to it.

The other way they want to ensure there will be forex to buy on the interbank market is this:

Authorised Dealers are also reminded that the retention period within which an exporter is entitled to utilize their retained export receipts remains within 30 days from the date of receipt. As per Exchange Control Directive RU28 dated 22 February 2019, all unutilized balances shall after the 30 day retention period, be offloaded into the interbank market at the prevailing market exchange rate and reported to Exchange Control on the Daily Return on Interbank Trading Transactions

So yes manufacturers need only sell 20% of their export earnings to RBZ for example, they however can’t withdraw the remaining 80% as forex. They can use it to pay for goods and services abroad. However, they can only do this within a 30 day period. After 30 days whatever remains in their FCA is then automatically sold through the interbank market.

This one is the hard one to swallow. It will encourage issues like transfer pricing. That is, company A in Zimbabwe can ask its sister company B in Mauritius to sell services to it at very high fees so it can make sure all its forex goes out of Zim and not be changed into an unstable currency: the Zim Dollar.

Much of the plan with the multicurrency ban falls apart at this point. Mthuli Ncube and John Mangudya should extend good faith to businesses and assure them their money is safe, not to force them to keep their money in a reserve currecny as volatile as the Zim Dollar. As long as they insist on that, loopholes will be found and exploited and the Black Market will be financed by those same companies. AND we will be back full circle.

Trust is a two way street. The onus is on the authorities to extend it first. The whole economy does not owe the government any trust at this point because they have betrayed us countless times. The only way this will work is if the government itself trusts us first. Yes some shoddy stuff will still happen but as long as the government continues to keep its end of the bargain more and more will go the official route, at least I think so….