The country’s biggest organisation representing Large Scale mining companies, the Chamber of Mines has hailed the introduction of the willing buyer willing seller interbank foreign exchange platform optimistic that it will match demand and supply based on economic fundamentals.
Rudairo Mapuranga
Through a report submitted to the Parliament Portfolio Committee on Budget, Finance and Economic Development yesterday the Chamber of Mines said the Auction forex exchange System which was introduced in 2020 with the main objective to provide an efficient market for allocating foreign exchange has created a vicious cycle between inflation and exchange rate volatility.
“There was a general belief that some scrupulous business entities and speculators took advantage of the arbitrage opportunities that existed between the auction market and the parallel market to make quick gains. They would buy forex at lower prices on the auction market and sell it at parallel market exchange rates. Those who may have used the forex for productive purposes would price their final goods and services using parallel rates.”
“With the increased money supply or cheap loans accessed through banks the demand for forex on the parallel market disproportionately increased and widened the gap between the auction and parallel exchange rate. The combination of market indiscipline and arbitrage opportunities created a vicious cycle between inflation and exchange rate volatility. The export sector was adversely affected as exporters who liquidate their surrender portion at official rate would source local inputs at parallel market rate,” The Chamber said.
The chamber said that the introduction of a willing-buyer willing-seller foreign exchange will address some of the challenges in the foreign exchange market through fostering discipline and reducing access to arbitrage opportunities.
“It is our hope that over time the auction-rate will converge with the interbank rate as the proceeds from exporters which constitute the feedstock of the auction market will now be liquidated at the willing buyer willing seller exchange rate,” the chamber said in part.
