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Beaven Dhliwayo Features Writer
This week, Treasury and the Reserve Bank of Zimbabwe made a bold decision by ending a 10-year multi-currency system and just a few days after the change in the monetary policy, positive signs are already showing. The Reserve Bank of Zimbabwe (RBZ) announced a cocktail of measures to tame the parallel market, including the scrapping of unconditional authorisation for foreign currency withdrawals by companies.
Multi-currency regime started in 2009 to curtail runaway inflation and shortages of basic goods and services, but industrialists have been complaining that it was increasingly becoming difficult to re-industrialise when using a basket of currencies dominated by the US dollar.
The surge in parallel market rates for forex was also becoming a cause for concern as it spawned high prices of goods and services as producers and sellers tracked the black market rate.
Following the announcement, the parallel market rates plummeted and most illegal foreign currency dealers in Harare are in panic mode after they bought the US dollar at high rates for resell at a premium.
US$100, which was being exchanged for up to RTGS$ 1 100 on the illegal foreign currency market on Friday evening, plunged to as low as $500. The trend is expected to continue, with the rates expected to self-correct to the pre-monetary policy levels.
Considering the strength of the US dollar against the local currencies, producing goods locally is expensive which is why businesses prefer to import goods.
The move by Government is a welcome as it brings every Zimbabwean into the economy. Unscrupulous business tycoons who were pricing their goods and services in the greenback marginalised the generality of the people.
For a notable time, the runaway black market had been in control of all monetary activities in the country, causing massive price distortions in the market and making life for ordinary citizen tough.
The tycoons’ stage-managed the parallel market that many have to offload the local currencies (RTGS and Bond Notes) as soon as they hit they accounts.
Wages and salaries were being eroded on a daily basis by the black market rate. The dilemma was exacerbated by the demand for US$ for domestic transactions even for goods ordinarily manufactured in Zimbabwe.
Statutory Instrument 142 of 2019 came to the rescue of many Zimbabweans.
Like all countries, the country can now embrace its own currency and have independence in the monetary policy formulation and the RBZ is now in full control of exchange rates.
Many Zimbabweans are optimistic that prices of basics goods will eventually go down. On top of banning the use of foreign currency in the country, there are further positive measures announced worth noting. Government adjusted interest rates (cost of borrowing) from 15 percent to 50 percent.
The revision will align well with the inflation rate and give banks the desire to lend money.
Banks were lending money at a lower interest rate in an inflationary environment meaning negative net returns while borrowers were using the situation to their advantage.
In its policy pronouncements, Treasury expects a trade deficit of close to $2,8 billion as of December 2019.
This means Government on its own will borrow an equivalent amount of roughly $2 billion and with the interest rate now pegged at 50 percent, the country will experience growth in money supply.
Government also intends to sterilise $1,2 billion in RTGS funds. In simpler terms, the RBZ will be deactivating RTGS balances to USD balances in the country’s banking system.
The balances, owed to foreign creditors and investors, had accumulated for over three years and due to foreign currency shortages, the country was not able to remit the funds.
In February this year, Government promised to settle all foreign credits incurred during dollarisation as 1:1 meaning banks will now have to transfer the amounts in RTGS$ whereas RBZ will settle them to external creditors at 1:1 through a revised scheme.
This is a good move by Government as the policy will lower the quantum of RTGS$ balances in the banking system.
Subsequently, the amount of RTGS$ deposits will diminish, further strengthening the RTGS$ on the forex market.
The RBZ also removed a cap on margins on the interbank rate and administrative limits on the Bureau De Change, which is a very pertinent measure.
The central bank had been in total control of daily interbank rates by imposition of a ceiling and this reduced the attractiveness of interbank rates against the parallel market.
This means the exchange rate on the interbank will now freely move without interference of the central bank interference.
Those with foreign currency can now trade it without interruptions on a willing buyer; willing seller basis.
This is the ultimate downfall of the black market, which had caused great tribulation among the people of Zimbabwe.
Controlling the exchange rate on the interbank market gave rise to off market trades and inspired the black market, which was now trading at 100 percent ahead of the official exchange rate.
This meant that liquidity on the interbank thus remained low averaging a measly $1,9 million compared to demand of over $10 million per session.
However, shock is being experienced on the official market with rates pegged as high as the black market rate, but are expected to settle at normal rates going forward.
Another welcome, in this age of illicit financial flows is the 90 days ultimatum for the disposal of dual listed shares purchased by investors on the Zimbabwe Stock Exchange.
There are particularly two stocks traded on the ZSE that have a dual listing, namely Old Mutual and Pretoria Portland Cement Zimbabwe (PPC).
Shares of the two companies trades also on the Johannesburg Stock Exchange (JSE) in South Africa, where they have a primary listing.
This means their shares can move between markets, for instance a share bought in Zimbabwe can also be traded in South Africa.
With foreign currency deficit plaguing the country, devious investors were buying Old Mutual shares in Zimbabwe and then sell them in South Africa as a means of moving funds from Zimbabwe to other countries.
Moreover, through the currency reforms the RBZ will be increasing the supply of foreign currency on the interbank by ensuring that at least 50 percent of the surrender portion of forex is channelled towards the interbank to ensure manufacturers and importers have easy access to funds, supplemented by Letters of Credits (LCs) for essential imports.
A commitment to increase the supply of forex on the interbank through retained forex from exporters is welcome.
LCs amounting to US$330 million will be channelled for the importation of fuel, cooking oil and wheat, as part of measures to buttress the removal of the multi-currency system by the Government.
The LCs will support key imports, which essentially have a high weight on the import basket, frees up interbank funds through reduced demand, and this means the RTGS$ or the Zimdollar will stabilise against the USD.
This will see the prices of basic commodities going down as they were fetching higher prices which were burdensome to most Zimbabweans.
However, prices may take time to come down, but with the new policy, prices are expected to go down in a month’s time as they will align to the prevailing exchange rate.
Online Reporter