One of the more curious trends in the weekly Reserve Bank of Zimbabwe (RBZ) foreign currency auctions is the rise in the top bid over the last couple of weeks, while the weighted average moves by a fraction of a Zimbabwean cent.
The minute shifts in the weighted average, a weekly movement of fraction of one hundredth of a percent, are easy to explain. Almost all bidders by now must be placing bids in a tiny range of a few cents, perhaps as little as two cents, as they seek predictability in exchange rates.
The rising lowest bid is also easy to explain. Everyone loves a bargain, but the auction system will reject bids that are too far below the bulge of bids around the average.
RBZ is not going to let bidders indulge in speculation now that we have reached a state of hyper-stability.
So even a bidder with invoices for the highest priority imports has to be careful of just how far below the previous average they can go.
There does not have to be anything official in any signals. Bidders’ bankers are quite capable of doing the sums and strongly advising their clients not to chance their arm with a bid that may well be found to be too low.
Obviously with an average, and the auction rate is an average even if it is weighted to take into account the size of each bid, there will be bids below average and bids above average. But if almost all bids are in a tight cluster then bids below that cluster risk being rejected. So we are now in the position where the bottom bid is only $1,35 below the average and that gap may even tighten further.
The curiosity is the top bid, which this week reached $89 having been $86 a month ago and $87 to $88 for most of this month, and all this movement at a time when the exchange rate has actually fallen, minutely, and with the rises of the last two weeks being a small fraction of a Zimbabwean cent.
Since bidders pay what they offer, this means that this week, the top bidder, even if they were only bidding on the US$50 000 minimum, gave the Reserve Bank a free gift of something close to $370 000.
It is unlikely that even the most ardent admirer of the RBZ believes the bank needs free gifts of that magnitude. So why?
It is fairly easy to see why the top bid might be a dollar or two over the average.
Someone has to be over to create an average, and there might well be a very nervous bidder urgently needing a category two import, being a firm follower of social media messages, and needing only a little above the minimum bid. So they pay a bit extra, maybe one percent extra, maybe two percent if they are really nervous, perhaps even three percent if they are panic stricken.
But to pay 9 percent over the mark seems excessive.
This is especially true when legally they are supposed to price the goods or services they sell in Zimbabwe at the auction rate.
Doing so when you are buying at almost 10 percent above that rate means that you could lose money.
Of course, there are a number of businesses that want nothing to do with the auction rate when they sell, only when they buy.
These businesses are known to be buying all or almost all their currency on the auction, but selling using the black market rate, or what they call the parallel rate to make it sound legal.
Their one chance of getting away with such manoeuvres are to claim they were the $89 bidder and that they have to get their money back.
It is just an odd coincidence that their bid and the black market rate are so close.
They could also be the sort of people who seriously stocked up with black market dollars before the auctions, or in the early days of the auctions when there might have been some legitimate uncertainty, and if they drop their pricing to fit in with the auction rate will lose a lot of money.
So again they want to bid at closer to the black market. Conspiracy theorists can think of many more reasons.
RBZ knows who the bidders are, and to defeat both the profiteering businesses who buy at auction and price at black market, and those weird bidders who bid way over the narrow band used by almost everyone else, they should follow up.
Someone needs to check the price lists of the successful bidders and especially check what exchange rate they offer customer who want to pay in US dollars. While a majority of Zimbabwean businesses are honest and try to be fair to customers, making their profit without gouging the buyers, there are some who feel entitled to make fortunes by manipulating paper, or abusing a monopoly or near monopoly.
Exchange rates are so stable, and that stability extends to the black market, simply because for the first time in many years everything is now set by markets and Government is not printing.
In fact, the latest accounts from the Treasury, and these have to be published in the Government Gazette monthly, show that in the first six months of this year, Government not only ran a primary Budget surplus, paying all its running costs from taxes, but actually pulled off a complete Budget surplus, paying everything it had to pay out of taxes.
The net effect of that was seen in the June monthly interest bill for local debt; it was way down meaning that a significant fraction of short-term local debt has been cancelled rather than rolled over.
So when Minister of Finance and Economic Development Mthuli Ncube says he has got liquidity under control, he has the numbers to prove it. What this means is that there are not enough Zimbabwe dollars in the world to push exchange rates up and for most importers the problem now is not finding foreign currency to buy, but finding Zimbabwe dollars to pay for it.
When the auctions take $9 billion a month out of the bank accounts of importers, you can see their problem.
The same lack of liquidity, coupled with market changes, trashes the social media rumours that the black market rate will explode when cross border trading restarts.
For a start those runners have never been a major factor in imports; there are a lot of them, but a suitcase or two each does not add up to much. Secondly smaller productive businesses now have their own auction, and can be direct importers.
It is interesting to note on the SME auction that spares and consumables are one of the larger items, sometimes the largest item, suggesting that runners will have less business.
In any case, the cross border traders have not been inactive during the lockdown.
They have been buying and importing using their “free funds”, but have been consolidating all those suitcase loads into single truck loads.
And Zimra has found that smuggling must have been rife, so even when suitcases come back they are going to be searched.
And all those complaints about wages and salaries from workers do indicate that the average Zimbabwean does not have bank accounts full of cash ready to hand over to cross border traders.
Demand will be limited. So Minister Ncube, putting all the bits together, is correct when he does not see border openings having negative effects.
He switched off the printing presses, the Reserve Bank put in market related auctions and made special provision so the smaller productive importers could join, Government and the Reserve Bank brought the anonymous overdraft and payment systems on mobile platforms under control, and Zimra has hit the smugglers.
So oddly enough it is cheaper and easier to do everything formally.