The Zimbabwe dollar gained 0.094% in the latest foreign currency auction, strengthening from 83.39 to the United States dollar last week to 83.32.
Earlier in June the country’s central bank – Reserve Bank of Zimbabwe (RBZ) introduced the Dutch (foreign currency) Auction System, effectively eliminating an inefficient peg of 25:1.
And an weeks of ‘price discovery’, the Zimbabwe dollar appears to have found its optimum rate against the US dollar.
Highlighting growing confidence in the forex auction system has the been the increasingly narrowing highest and lowest bids.
And in the latest auction, the gap between top and bottom successful bids continued to be narrow.
The top bid on the main auction dropped very slightly from $88 to $87,50 while the bottom bid fell from $80 to $76, as some bidders sought out a bargain.
The Corporate Finance Institute (CFA), described th “Dutch auction system” as “a price discovery process in which the auctioneer starts with the highest asking price and lowers it until it reaches a price level where the bids received will cover the entire offer quantity.”
To this extent, an efficient ‘price discovery’ process brings together buyers and sellers in the market and lets them interact as they determine the value of an asset in the marketplace.
In Zimbabwe’s foreign currency market, the auction has worked to remove private companies from the illegal market where mere speculators are key players in rate determination.
And strict money supply control has also bouyed the current monetary measures.
Latest official figures from the apex bank show that the country’s reserve money has remained on a downward trend, declining 3.3 percent to $11.4 billion in the week to August 21, 2020, as the RBZ has maintained a tight leash on liquidity expansion to curb inflation and ensure exchange stability.
The numbers show that reserve money, funds held by banks and available for lending declined from ZWL$13.8 billion by the end of the first quarter to ZWL$12 billion as at the end of June 2020.