Zimbabwe ditches currency controls for free flows that will benefit exporters

Zimbabwe is shaking things up in its foreign exchange market, transitioning from a controlled auction system to a market-driven approach.

The move, announced by the Reserve Bank of Zimbabwe (RBZ), is designed to improve access to foreign currency and boost the economy.

Previously, businesses relied on the Foreign Exchange Auction System (FEAS) to obtain foreign currency, but it was discontinued as of April 8th, 2024.

Now, under the “Willing-Buyer-Willing-Seller” (WBWS) system, authorised dealers (banks) and currency exchanges will trade directly with businesses and individuals.

The move essentially allows the exchange rate to be determined by supply and demand.

The central bank says it is addressing outstanding auction allotments by converting them into a two-year ZiG-denominated investment instrument offering a 7.5% interest rate. This is done to protect the value of their earnings while the new system beds in.

Exporters will retain 75% of their foreign currency earnings, with the remaining 25% going to the Reserve Bank.

“All auction allotments arrears that accumulated from non-funding by the auction will be refunded to recipients at the current inter-bank exchange rate.

“To allow the new structured currency system to start on a clean slate, the refund will entail conversion of all outstanding auction allotments into a 2-year ZiG denominated investment instrument at an interest rate of 7.5% per annum.

“The Reserve Bank Financial Markets Division will communicate with banks on the respective implementation framework.

“For Exchange Control purposes, the conversion of foreign exchange auction allotment arrears to ZiG denominated investment instruments expunges the foreign exchange obligation and liability from the Reserve Bank.

“Similarly, the conversion also gives the beneficiary the benefit of value preservation in holding the investment instrument,” the RBZ noted.

The new system also accommodates foreign investors. Authorised dealers are required to open special ZiG-denominated accounts for non-residents interested in trading on the Zimbabwe Stock Exchange. This could see an influx of foreign capital, boosting local companies and the stock market.

The Reserve Bank acknowledges there will be an adjustment period. To ensure a smooth transition, they are requiring authorised dealers to submit daily foreign currency demand forecasts for the next three months in order to help them manage the flow of foreign currency in the system.

The Reserve Bank is also taking a hard line, warning of inspections and penalties for those who violate exchange control regulations.

“Authorised Dealers and market players directed to ensure that the compliance parameters contained in this Exchange Control Directive are fully Implemented.

“Exchange Control shall conduct on-site, off-site and targeted adhoc inspections to monitor compliance by Authorised Dealers with the measures outlined to operationalize the structured currency.

“Market players that shall be found to be in violation of Exchange Control rules and regulations, shall be penalised in terms of Section 5(1) of the Exchange Control Act [Chapter 22:05] and Section 37 (1), (8), and (ii) of the Exchange Control Regulations, Statutory Instrument 109 of 1996,” the RBZ added.