THE movement of the exchange rate on the black market and its ability to withstand pressure from the banks clearly shows that it could be a long time before this market dies.
Over the past two months the black market has become more adaptable and stronger. The parallel market has in fact set the rate at which banks are buying the foreign currency.
But what really makes market strong?
Perhaps the answer to this is found in the origin of this problem: shortages. The country is not producing much foreign currency because the key sectors like agriculture and mining have been destroyed by government policies.
The black market is driven by the shortages of foreign currency in the formal market. These shortages have not disappeared because the foreign currency exchange policies have been liberalised.
Analysts said the black market will continue to exist for as long as there is a shortage in the market.
A visit to most of the parallel market trading places in the city indicates a sudden increase in business despite the fact that the foreign currency trading was liberalised.
The sellers are drawn to this market by the need to make a living and the higher returns that the business offers. The buyers are drawn to this market by the need to sustain their businesses which are not considered to be on the priority list of the central bank.
There is also the issue of convenience.
Whereas banks are only allowed to buy US$150 from an individual per day the parallel market dealers don’t have a limit.
Nelia Rugare who normally receives money from her brother in the United Kingdom said she stopped changing her foreign currency with banks after she was told she could only get her Zimdollars through transfer.
“Banks offer lower rates and there is no room for negotiation. After standing in a queue for hours they will offer to transfer the money in your account,” said Rugare.
Her dealings with the parallel market are simple.
“All I have to do is phone them and they will come. Besides when the days are bad I can negotiate a good rate.”
John Robertson, an independent economic analyst, said as inflation continues to rise people become desperate to lay their hands on more stable currencies.
“A lot of people are facing difficulties, only a few people have and are being allocated the foreign currency. People in desperate need of foreign currency are black in the parallel market,” said Robertson.
“The parallel market is doing quite well; it is still functioning and is as active as it was before the changes. It’s a function of supply and demand. The market is still short.”
Even those that are on the priority list are failing to get the foreign currency because there just isn’t enough to go round, said Robertson.
He said some retailers who deal with strategic goods are not included in the priority list such that they do not have a choice but to go to the parallel market.
“Black market dealers are agents of companies which fail to get foreign currency through the banking system probably because their reasons do not warrant them to be on the priority list.”
“These guys operate from everywhere, offices, streets or even use their cars as offices. It is now a form of employment for some people, especially for those who have access to foreign currency. They are not only trading in foreign currency but are involved in all sorts of dealings including fuel.”
The other advantage is that anyone who has the courage and ability can be a parallel market dealer as long as one can handle the arithmetic that needs to be done.
The biggest problem at the moment is that the banks are buying but they are not selling to the market. This means that this is a one way market. They are buying the foreign currency to keep instead of selling.
The result is an upsurge in the parallel market which has been left to fill the gaps left by the banks.
“Complete eradication of the parallel market will not come in easily because of a number of factors that are attached to the formal system. The market is a one way market and is characterised by declining confidence and lack of trust,” Chinyama said.
Already confidence in the interbank market is beginning to wane.
“People are not comfortable being asked questions, the long queues and timing are not providing a good environment to do their transactions,” Chinyama said.
The corruption includes some bank officials who beat the banking system to supply the dealers with trillions of dollars to trade on the parallel market.
“Dealers are fed by individuals because they offer convenience,” said the analyst.
“One does not have to leave his office or home to change his money. Companies and NGOs even sell their hard currency through the black market because it offers more.”
Brains Muchemwa, an analyst with Genesis Investment Bank, said the depreciation of the exchange rate reflects the excess liquidity in the economy as well as increasing demand for foreign currency as some previously suppressed sectors of the economy can afford to justify economic pricing of goods and services.
“The exchange rate is probably always in equilibrium everyday, and it is important to understand that it’s a moving equilibrium emanating from the behavioral equilibrium exchange rate approach reflecting supply and demand dynamics in the economy,” Muchemwa said.
By Jeslyn Dendere