Zimbabwe’s Imara Sees U.S Dollar Surge Easing Out Forex Auction
Zimbabwe’s oldest brokerage sees a surge in the use of U.S. dollars for transactions reducing the need of a weekly auction run by the central bank in which it allocates foreign-exchange to businesses.
Imara Asset Management Ltd. expects the auction to “diminish in importance as time goes by” due to it not being “a free market” of foreign-exchange and as U.S. dollar liquidity has improved, said John Legat, chief executive officer of the brokerage, in a July quarterly note to clients. That’s after authorities allowed the greenback to be used alongside the local unit in paying for everything from fuel to passports.
A lag time of “12 weeks” before access to actual U.S. dollars from the auction, makes it unattractive for businesses to wait for the funds, he said. “This plays havoc with working capital management as most businesses are unable to stock sufficient inventory to cater for such long delays,” said Legat.
Zimbabwe’s central bank last year abandoned a currency peg and said it would allow the rate to be set by a weekly auction system. The auctions that began in June 2020 have helped to improve liquidity with more than $1.5 billion traded, according to data from the central bank and eased a severe U.S. dollar crunch which forced companies to turn to the parallel market for foreign-currency.
The auctions have also been credited with helping to stabilize the exchange rate. The Zimbabwe dollar now trades at 85.6 to the U.S. dollar after being pegged at parity just two years ago and has weakened 4.6% this year, according to data compiled by Bloomberg.
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