By A Correspondent- RBZ governor John Mangudya has expressed optimism that the recently adopted foreign auction exchange system is the best strategy to stabilise foreign exchange rates in the country.

In an interview with the statemedia, Mangudya said:

“We believe that the foreign exchange auction system is the best amongst the available options.

Just to put things into perceptive, the interbank system which we tried earlier in the year failed because the banks could not trade amongst themselves due to counterparty limits, as well as the issue of de-risking. The country lost over 80 correspondent bank relationships over the past couple of years due to de-risking.

The few banks which house exporters cannot transact with the other local banks.

Let me also point out a key fundamental which will drive the auction system: that the exchange rate will be driven by effective demand from corporates.

We, therefore, expect the exchange rate to stabilise at a level which allows users of foreign exchange to price their goods and services appropriately, while at the same time providing good value for money for exporters.

The bank has set up a Foreign Exchange Auction Adjudication Committee comprising officials from the Ministry of Finance and Economic Development, Monetary Policy Committee and the Reserve Bank to oversee the operations of the auction.

The allotments will be guided by the priority list to ensure that most of the available resources are allotted to productive sector activities.

We also set a maximum bid amount of US$500 000 to ensure that the available resources are spread to many beneficiaries.

Let me emphasise that the Bank would like this auction system to be very transparent.”