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THE strong reminder by the Ministry of Finance and Economic Development that all payments to Government and local authorities must be in local currency, and the warning given by the Ministry of Primary and Secondary Education that all schools, including private schools, must accept local currency, were timely.
This, after all, is the law. For public entities there is the Public Finance Act, which specifies the Finance Ministry as the prescriber of what currencies must be used in public payments.
The Exchange Control Act governs all payments, and includes private as well as public payments, and while the multi-currency system is allowed, and has been temporarily embedded until the end of 2025, this only gives the option to the person paying to pay in foreign currency, but not the right of the seller or service provider to demand foreign currency.
Under both Acts, Harare City Council’s attempt to insist on foreign currency payments for some services is thus illegal, to take one recent example.
All the legal instruments and rules now specify that the exchange rate to be used is the interbank rate, which has become the official rate, the same as it is in most countries around the world. The basket of measures introduced by the Government and the Reserve Bank of Zimbabwe has narrowed the gap between official and black market rates, both reducing the premium the black market offers and the incredible margin between black market buy and sell rates.
Already there is some overlap between some rates, and the Reserve Bank of Zimbabwe expects very close convergence very soon.
Permanent Secretary for Finance and Economic Development Mr George Guvamatanga put it politely when he said that some seemed to have misinterpreted the decision at the end of June to guarantee the multi-currency system to the end of 2025 as allowing them to fix foreign currency as the only permitted payment option. They were wrong.
There are some exceptions, but these are all individually permitted by the Finance Ministry. Two obvious ones are that non-resident foreigners, that is visitors, usually have to pay for the few Government services they use in foreign currency and that Zimbabwean residents do have to pay half their taxes on foreign currency income in foreign currency.
But if you do not have the specific permission you have to accept local currency, regardless of who you are, and now all public entities must only accept local currency.
This does not stop either the Government or the private sector from quoting any prices in foreign currency, and sometimes this is convenient until Zimbabwe’s inflation rates are very low.
It does allow longer range information for a price than a month or two so allowing everyone to budget more efficiently, but that budgeting process is largely looking at a cost denominated in US dollars and checking the daily interbank rate.
Zimsec did this for examination fees, allowing parents to plan several months ahead, but insisted that the fees in the payment fortnight were in local currency at the interbank rate at the start of that fortnight.
Zesa has been allowed to do this, rather than seeking a tariff rise every few months. This allows Zesa to predict its income and so pay its foreign currency bills for imported power and equipment, since Zesa buys its foreign currency at interbank rates and having raised its local currency at the same rates is not caught short.
Just last week a large batch of fees charged by Zinara and the Central Vehicle Registry were set in US dollars, allowing people to now buy a licence for 12 months at long last, but payment is in local currency at the interbank rate on the date of payment.
The one exception is for foreign-registered vehicles, where foreign currency is required regardless of whether that vehicle is owned by a resident or a non-resident foreigner just visiting.
In the run-up to the third term opening this week, there were a small group of schools chancing their arm by demanding fees in foreign currency. This has been shot down, and such schools risk losing their registration.
The guilty schools were all private schools, rather than public schools. There are some private schools that do continually obey the laws, although perhaps appealing to those parents who have foreign currency incomes to pay in foreign currency. But others were trying to demand payment in foreign currency only.
Others try and use the black market sell rate, which includes the huge profit margins demanded by dealers and so is artificially high and in any case can be extremely variable depending on who you buy from.
That is illegal since the interbank rate, now liberated from interference by the Reserve Bank, is the only permitted rate.
There is in fact a curiosity here. Parents and guardians who have children at foreign universities and so obviously must pay in foreign currency can buy this currency from their bank at the interbank rate, since they are included on the presently limited list of willing buyers, and can even enter the SME foreign currency auctions.
But some local schools were insisting that parents went to the black market to buy foreign currency to pay fees.
A lot of this sort of foreign currency pricing but acceptance of payment in local currency is likely to fall aside as the spike in inflation over the last five months continues to wind down.
Monthly inflation had been inching up slightly since the low in the middle of last year, but the rising spike only came in for April, May and June and has been falling, although is still double figures, for July and August.
With the double attack on the black market speculation, both through rules and civil penalties to stop the behaviour, and through market forces of interest rates and other value options to make this arbitraging and speculation unprofitable, we can shortly expect a return to the low monthly inflation that our fundamentals suggest should be the case.
At the same time the interbank market is being allowed to set a rational exchange rate, with the auctions now having to follow this as over-low bids are rejected.
More importantly there is a deliberate policy to allow the interbank market to handle ever larger transactions, as progressively it is pushed along the road to being the dominant foreign currency market.
This is being done carefully, since each stage needs to be checked that only the willing-buyers and willing sellers are setting the price, and that the speculators and any of their banking accomplices are staying out of the market.
So long as we maintain the Second Republic position that foreign currency inflows exceed outflows this will sooner rather than later result in the normal position where everyone uses local currency for everything internally and buys and sells foreign currency through a bank.
Online Reporter