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*Forex Auction Will Collapse - Biti* *Follow Pindula on WhatsApp for daily new updates* https://whatsapp.com/channel/0029Va84dngJP21B2nWeyM3v?lm Former Finance Minister Tendai Biti while delivering his State Of The Economy address on Tuesday said the RBZ’s foreign currency auction is a charade and it will collapse at some point, New Zimbabwe reports. Calling the auction a myth that is not sustainable Biti said: ---------- Latest itel S24 available on Pindula: 128GB storage, 4GB RAM $119 USD WhatsApp: +263715068543 Calls: 0772464000 Buy Online: https://www.pindula.co.zw/market/itel-s24-128gb-22-20240426142756795795/?s=wanews ---------- > This myth will break, there will be an implosion as more and more demand on foreign currency increases. > When the demand on foreign currency increases with a limited supply, the price will shoot up. > So, the pretence of 80, 81, 79 is a myth and myth that will be shattered very soon. > There has been a claim by this regime that the Dutch auction system has worked and has stabilised the prices. We contend that the Dutch auction system is not an auction system. > An auction system is a free market, with free entry on both on supply side and on demand side. > Regrettably, as far as the Dutch auction system is concerned, there is only one supply…only the Reserve Bank has been supplying foreign currency. > So, where you have got one supplier, you can’t call that an auction. It’s a fixed exchange rate regime because he who controls the supply line, he who controls the tap, can control the value of the product. > And you will notice that the price of the product of the foreign currency on the Dutch auction system has remained constantly at 80, it has been floating between 79 to 82 and it has averaged 80. > It’s a controlled exchange rate, it’s a rigged exchange rate, the (RBZ) governor wakes up on the wrong side of the bed on Tuesday and says today it is going to be 81 or today it is going to be 79. There is no science, there is no attempt to be sophisticated. > So, the issue of exchange rate stability is a myth. Biti continued with his argument and gave the following statistics to make his case about why he is convinced the auction system will collapse: > An average of US$18 million has been released to the auction floor every Tuesday, which meant that end of year, US$468 million would have been released in total. > Assuming the same will happen in 2021, in a 12-month circle, the auction would have sold around US$936 million. > Over the years, the regime’s failure to contain money supply has created huge distortions in the economy. > In the second half of 2019, reserve money shot sharply to reach an estimated ZWL$9 billion compared to 3.3 billion in June of the same year. > For the period June 2019-June 2020, money supply grew by 575.9 percent from ZWL $14.7 billion to ZWL $98.82 billion. > The increase in money supply is underpinned largely by unregulated quasi-fiscal activities by a rogue and captured central bank that has effectively been running a parallel treasury. > It is also a reflection of corruption and massive leakages in the system. > For instance, in July 2019, the RBZ discounted a US 300-million-dollar denominated Treasury bill held by Kuda Tagwirei’s Sakunda Holdings at below market rates thereby fuelling parallel market activity and a sharp decline in the official exchange rate. > The introduction in September for an export incentive for gold purchases increased the reserve money by ZWL 400 million per month. > With Pfumbudza, Command Agriculture and internal fissures, we expect reserve money to increase further thereby pushing inflation pressures. At the same event suspected Zanu PF activists heckled Biti and they had to be escorted out by the security. More: New Zimbabwe _If you found this article useful_ *Please support Pindula by forwarding to friends and groups*
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