The first SME foreign currency auction was held by the Reserve bank of Zimbabwe on Thursday the 6th of August and among the results were some surprises and a not so surprising reaction from the Reserve if you’ve been following our discussion on the matter of the SME exchange. The RBZ stated without showing that the Weighted average rate remained the same as the Tuesday result, 80.4663 Zimbabwean dollars to 1 US dollar. The Results statement ended with the announcement that going forward the SME auction would now be conducted concurrently with the min auction on Tuesday.
Overall the auction showed there is an appetite in the SME spaces for funds, a total of US$460 167.99 was allocated with no shortfall in supply as has been a constant feature of the main auction. The weighted average was not displayed as per usual but in the notes, we were informed it was the same as the Tuesday auction. For comparison’s sake, we can look at the table below which shows that the SMEs auction had a closer spread between the highest and lowest bids.
|Item||Main auction 04/08||SME auction 06/08|
|Lowest accepted rate||78||75|
|Weighted Average rate||80.4663||80.4663 (?)|
For the most part, the SME auction shows a similar distribution pattern to the main auction so far. Granted there are differences and these can be attributed to comparing just one auction iteration to 7. Over time the SME auctions are likely to show a very similar pattern.
SME Auction Moved to Tuesday
One of the main drawbacks we discussed of the SME auction was it’s placing on Thursday which would lead to an effect where one auction determines the next auction’s rate. This would lead to faster depreciation of the Zimbabwean dollar. The Reserve bank unsurprisingly decided to have the auction on Tuesday alongside the main auction. The cryptic delivery of the weighted average rate of the SME auction may lead people to think that perhaps the results were not as expected. I believe just combining the auction into one is better, especially in the case of promoting our one rate to rule them all. They should also address those who now sit in the no man’s land between those needing US$20 000 and US$50 000.
The road ahead is interesting. The SME auction was an attempt to include more players in the auction system. However, faced with a foreseeable challenge of differing rates the RBZ chose to be cryptic rather than forthcoming. Conducting the auctions on the same day is a step in the right direction, perhaps moving towards an open completely inclusive foreign currency auction or how currency is normally traded in other territories.