Premiums surge on scarce dollar

Premiums surge on scarce dollar

Source: Premiums surge on scarce dollar | Newsday (Business)

PREMIUMS on the dollar have shot up to 80% as demand for the currency which is seen as a store of value increases.
BY TATIRA ZWINOIRA/MTHANDAZO NYONI

The rise in premiums came as President Robert Mugabe sacked his deputy, Emmerson Mnangagwa on Monday for allegedly undermining his authority, among others.

Mnangagwa was widely seen by the business and international community as a reformer capable of introducing liberal policies.
A survey by NewsDay yesterday showed that premiums on real time gross settlement (RTGS) had risen from 70% in the previous week on the parallel market. The rising premium was 45% on the dollar using bond notes.

This means with August RTGS balances of $5,33 billion the real value is actually $1,06 billion using these parallel market premiums.

A cash dealer operating at the Fourth Street bus terminus in the central business district, in Harare said the movement in premiums were up as the dollar was becoming scarce.

“Listen my brother, premiums are now up to 80% and there is nothing you can do but dollars (United States dollars) are scarce,” the cash dealer said.

Currency dealers warned the premium would hit 100% in the next few weeks or even sooner.

In recent weeks, cash dealers have slowly been returning to the CBD despite Statutory Instrument (SI) 122A of 2017 — Exchange Control (Amendment) Regulations 2017 (No 5) which criminalises the act and has a 10-year jail term if found guilty.

Government adviser and economist, Ashok Chakravarti said such rates would quicken inflation, while other economists warned this could end up in hyperinflationary territory.

“Remember that CZI said 30 to 40% of their foreign currency needs are coming from the parallel market, they said this about a month ago. If that is the case parallel market rates are going to increase inflation, so this is our primary concern,” he said.

Financial expert Persistence Gwanyanya said if the situation is left unchecked, it will be inflationary and force a de-dollarisation as companies who source foreign currency from the parallel market would eventually factor the premiums into their prices for their products.

However, he added that the situation was worsened by banks that were no longer controlling the bulk of foreign currency and were seeing arbitrage opportunities.

“What used to happen was that banks used to allocate foreign currency for different use until recently when the Reserve Bank (of Zimbabwe) took over the bulk of foreign currency allocations. But, you will find that because of the shortages, banks would not escape this whole conundrum untouched because to an extent they would have also contributed to the challenges,” he said.

“It is only natural that when there are challenges they are bound to create sum arbitrage opportunities, so the allocation of cash would be biased and you cannot rule out issues to do with corruption in the allocation of cash.”

The worsening foreign currency crisis has also seen banks putting limits on Visa, MasterCard and online payments. Banks such as Stanbic now require clients to apply to get permission for online payments regardless of the amount.

MBCA Bank, a unit of South Africa’s Nedbank group, said it has since stopped allocating foreign currency to its customers for holiday travel until further notice.

In a notice to customers on Wednesday, MBCA bank executive head — marketing, public relations and communications, Dedrey Mutimutema said: “In an on-going effort to meet the needs of our clients, MBCA Bank continues to prioritise distribution of the scarce foreign currency reserves in line with the Reserve Bank of Zimbabwe guidelines and priority allocation framework.”

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