By Farai Mutambanengwe

Since my last rant regarding the RBZ and banks’ complacence and possible connivance regarding the failure of the interbank market, I have since got to learn that the elephant that is the parallel market is actually a far more structured and institutionalised setup that we always thought, and right now it is fighting for its continued survival.

Apparently there are at least about four key structures that principally make up the skeleton of this monster. In terms of prominence, the first is what I would call the corporate layer. This layer has a few major corporate players who have set up structures whereby they have the exporters on one side, and the corporate importers on the other, with the banks probably playing an intermediary role. This layer is where the real money (hundreds of millions a month) moves.

The second layer is again a few key players, some of them part of the first structure above, who are sitting on piles of RTGS liquidity and are happy to convert this to US dollar at whatever rate is possible, mostly because a lot of this RTGS money was obtained through connections to the system, rather than sweat and blood like the rest of us. This layer also contains people with ability to borrow from the banks, who are borrowing RTGS and using it to buy hard currency, on the bet that RTGS will continue to depreciate indefinitely. It is likely the banks themselves are also doing this.

The third layer is the layer yema “bag”, the mysterious source of fresh, crisp bond notes that are pushed into the informal sector to mop up Diaspora and informal remittances from the streets, including the famous Roadport. It stands to reason that this money can only be coming out of the RBZ and/or the banks, as that is the only place where crisp currency of significant magnitude can come from.

Then there is of course the street market where you and I change our US$20 and $200 Rands with nobodies who strangely all have the same rate at any given time of the day. This layer of course is runners who feed their collections to aggregators who ultimately push the money to any one of the three players above. This market currently has two distinct rates depending on whether one is dealing in cash or in transfers/Ecocash.

So what happened was the introduction of the interbank market was indeed a threat to those first three structures, and initially because the interbank rate was set at a level below the actual parallel market rate, it was a no-brainer that they were not affected. In fact, they were emboldened and started to push up the parallel market rate as had been their custom. The fact of the matter is there was really no incentive for the key players (exporters, banks, RBZ, corporate parallel market players) to promote the destruction of their source of profit. Hence the half-hearted approach towards adjusting the interbank rate upwards to meet the market rate. RBZ was also looking at the cost it would have to pay to purchase currency on the interbank market, hence they had that as another convenient excuse as to why the rate could not go to the proper market rate.

What has happened, however is that as the rate has continued to escalate, the importers on the other side of the corporate structures found themselves unable to push product, as consumer disposable income and RTGS in circulation amongst the general population dwindled. The same has happened on the informal markets where players found it hard to price in a rate higher than 1:4 . Thus the parallel market rate has been bouncing off the 1:5 resistance level.

Effectively the only people left still buying USD are the holders of excess RTGS liquidity, as well as those “vema bhegi”, in other words those who do not actually have to earn the RTGS they use to buy hard currency. They cannot, of course, exhaust the entire monthly inflows of currency, hence the weakness in the rate. On the other side, though, is the demand especially by schools that they be paid in hard currency. Because the majority of parents earn their money in RTGS, this means they have to go on the parallel market to purchase this currency, and that could be a short-term lifeline for the parallel market.

But the medium term prognosis for the parallel market structures is obviously poor, given (1) government remaining steadfast in not printing more RTGS/bond, (2) rising RTGS prices in the local market which are resulting in lower demand for products, as well as lower availability of RTGS itself, and (3) government’s tight monetary policy i.e. 2% transaction tax. Even if the buyers continue buying currency to prop up the rate, within three to six months they will be exhausted. Realities on the ground have also shown people that re-dollarisation will not happen, and RTGS is increasingly going to be the currency in which business occurs.

So ultimately as long as the interbank market remains, and ideally is allowed to continue raising its rate, the death knell for the parallel market is ringing. What could speed this up though is RBZ increasing interest rates, forcing those borrowing RTGS to buy hard currency to at least stop, and more likely offload the hard currency to expunge their borrowings. You and I can play our part by avoiding the parallel market, hard call though that may seem. Exporters need to consider the greater good and offload on the formal market rather than continue using those structures. Of course, that is unlikely to happen.

Bottomline is we are still headed in the right direction, thanks to Prof. Mthuli’s unwavering stance on sticking to proper management of the fundamentals. The ride is rocky and will continue to be so for some months to come, but if everything works as planned we could see the clouds clearing by the last quarter of this year.