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The stability of the new ZiG currency and corresponding very low inflation almost five months after the gold-backed currency was introduced, is a direct result of the relentless and continuous measures by the Reserve Bank of Zimbabwe and the Government.
These have been to control money supply, accumulate gold and foreign reserves, channel the required foreign currency needed for approved imports into the banking sector, and other fairly conservative monetary and fiscal measures.
Basically Zimbabwe is becoming a normal country and starting to move positively towards the day when all domestic transactions will be in local currency, as happens in almost all countries. Although we still have quite a few more steps to make on that journey, we are now making them.
One of the inherited problems from the past is the black market. But with the combination of a proper interbank market for foreign currency, run by banks not the Government or Reserve Bank, and continuing direct action against dealers that black market has been declining sharply.
Reserve Bank Governor, Dr John Mushayavanhu now estimates that it accounts for just 5 percent of foreign currency dealings, and while it was never handling a majority of them there used to be some significant dealing. But not any more.
The huge decline means that no one is able to get much foreign currency out of that market, as there is not much on sale, and so transactions tend to be very small. This has not stopped some dealers from telling WhatsApp groups what their prices might be, messages that can circulate on social media, although most dealers will be very careful these days not to give both buying and selling rates considering their quoted margins of around 50 percent.
As Dr Mushayavanhu noted, the prices are now largely just quotes, rather than the prices for what currency is being bought and sold for, and that has allowed speculators to climb in and see what they can get someone, somewhere, to pay rather than control a market.
Normally this would neither be significant nor a problem, since if hardly any business is being done, and probably almost nothing at the quoted prices, the rates would just be a sign that the black market is dying out.
Unfortunately, there are those who for reasons that have nothing to do with the fundamentals of the inflows and outflows of foreign currency into and from Zimbabwe, now consistently positive and hence the accumulation of reserves, are frightened or mistakenly believe that these quoted black market rates are meaningful.
This has seen some fairly respectable suppliers raise prices, not because costs are rising, but because they are frightened the cost of foreign currency may suddenly jump. There has also been a knock-on effect in some of the informal trading between friends and relatives, who look at these social media messages rather than the interbank or “supermarket” retailer rates.
In his mid-year monetary policy review issued at the end of last week, Dr Mushayavanhu was generally piling good news on good news, and confirming and reinforcing the statistics and data already given in the mid-year fiscal review by Minister of Finance, Economic Development and Investment Promotion Prof Mthuli Ncube.
The most crucial was that despite the higher food imports, basically by the private sector, as a result of the drought, and lower global mineral prices, our exports are still rising in value as we raise export volumes and do more processing before dispatch, and we are generating surpluses in our balance of payments, that is more foreign currency flow in than flows out, with a marked jump in the first six months of this year.
The fact that diaspora remittances form a reasonable chunk of these inflows, and are usually spent directly as foreign currency rather than converted into local currency before spending, means that there is a sort of dual market.
But the statistics also suggest that these days only a small fraction of diaspora money is channelled into the black market, and that is a major gain. It now generally flows directly into the real economy, both informal and formal, rather than into speculation and messing around.
The need to maintain the value of the ZiG has been recognised by the continuing increase in reserves backing the currency, and the move by the Reserve Bank and Finance Ministry to monitor and control money supply, with both upgraded statistics and weekly joint action meetings.
Between the April launch and the end of June the reserves, almost entirely gold and foreign currency, went from three-fold to four-fold cover.
The Reserve Bank is still accumulating reserves, and the mid-term review made it clear that this continues, but it is now to raise the levels to global norms, which while obviously backing a currency are usually expressed in months of import cover. This is a move away from the hand-to-mouth position we have been in since UDI in 1965 and another stabilising factor.
At the same time as getting better statistics readily available on his own desk, the Governor is now planning on weekly reports of the most crucial figures, and that switch to a far more open information system will prevent the sort of nightmares that sometimes hit business people.
This is something that they have, quite reasonably, been seeking and the Reserve Bank is responding.
Dr Mushayavanhu also made it clear that the authorities will continue to feed foreign currency into the interbank market, to make sure that there are no pipeline distortions in that market, using half the 25 percent of export earnings that exporters have to sell on payment.
Fixing the figure is another confidence builder.
Central banks in most countries do buy and sell foreign currency in their interbank markets, so this is not some special Zimbabwean measure, but a normal central bank function.
It seems that the expected progress is going to be more of the same, continuing sound fiscal policies by the Government and sound monetary policies by the Reserve Bank to provide that stable and secure base for continued economic growth.
At the same time we assume that the pressure on the black market will continue, and that everyone will come to recognise that it is, in the end, an almost trivial market as well as an illegal market and that unable to do any business.
Online Reporter