Tinaye Agere
NEARLY 300 days ago, the Reserve Bank of Zimbabwe (RBZ) introduced the Zimbabwe Gold (ZiG) currency as part of the Second Republic’s ongoing economic and currency reforms. The ZiG faced significant headwinds last year, prompting a devaluation in September. The Sunday Mail’s DEBRA MATABVU interviewed RBZ Governor Dr JOHN MUSHAYAVANHU, who outlined the prospects of the ZiG in 2025, as well as key interventions to defend the currency and stabilise the economy.
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Q: How has the RBZ’s monetary policy stance fared since the announcement of the recalibrated Monetary Policy Statement on April 5, 2024, and has the central bank “walked the talk” as promised?
A: As you may recall, in my maiden Monetary Policy Statement, I made a firm commitment for the Reserve Bank to ensure (i) a solid and stable national currency; (ii) a stable and sustainable exchange rate; (iii) robust policy credibility; (iv) restoration of market confidence; and (v) a stable and sustainable macro-economy as enshrined in the National Development Strategy 1 (NDS1) and Vision 2030.
The Reserve Bank has for nearly 300 days since the April 5, 2024 monetary policy pronouncements been implementing deliberate policy measures effectively to achieve lasting stability, certainty and predictability in monetary and financial affairs.
The sequential monetary policy actions continued to be anchored on implementation of a market-determined exchange rate system under the willing-buyer, willing-seller (WBWS) interbank trading arrangement; efficient and optimal money supply management; ensuring full backing of ZiG; and putting in place other supportive measures in response to market demand.
Accordingly, the Reserve Bank has indeed walked the talk on all the commitments made in the recalibrated Monetary Policy Statement of April 5, 2024.
This culminated in price stability as observed in the first five months (April-August 2024) of monetary policy implementation when month-on-month inflation averaged -0,82 percent.
Inflation, however, spiked in October 2024, arising from a once-off exchange rate depreciation.
The monetary policy measures put in place by the Monetary Policy Committee (MPC) on September 27, 2024 included increases in the bank policy rate, upward review and rationalisation of reserve requirements for both ZiG and US dollar deposits and allowing greater exchange rate flexibility.
These measures were aimed at addressing the imbalances in the foreign exchange market due to emerging parallel market activities.
Arising from these actions, inflation declined markedly from 37,2 percent in October 2024 to 11,7 percent in November and significantly declining further to 3,7 percent in December 2024.
The exchange rate premium also narrowed to below 40 percent, a substantial decrease from over 130 percent recorded earlier in September 2024.
Q: Given the current economic landscape, what is your outlook for the stability of the ZiG in 2025?
A: The country has been experiencing relative price and exchange rate stability following measures implemented by the Reserve Bank through the MPC on September 27, 2024.
These measures resulted in stability of prices in retail shops, as well as the exchange rate in both the interbank and alternative markets.
The Reserve Bank, therefore, strongly believes that the monetary policy measures have addressed the root causes of the instability.
Going forward, the focus is to further entrench the price stability through prudent money supply management alongside measures to support economic activity.
The stability in prices and exchange rate are critical for the preservation of the value of ZiG.
As a result, the RBZ expects improved public confidence in ZiG as a store of value.
The effectiveness of the Reserve Bank’s monetary policy stance will continue to anchor currency and exchange rate stability going forward.
Q: Zimbabwe garnered a record 36,48 tonnes of gold in 2024. How will this contribute to strengthening of the ZiG?
A: Indeed, the country’s gold production reached a record of 36,48 tonnes in 2024, reflecting a 21 percent increase from the previous year’s output of 30,10 tonnes.
The rise in gold production has been vital for the Reserve Bank to build foreign reserves through royalties and foreign currency earnings from exports, which is critical for backing ZiG. The boost in gold output has led to higher gold holdings needed to support and cover the ZiG.
Consequently, as of January 9, 2025, the available foreign reserves (reserve cover) held by the Reserve Bank in the form of gold and foreign currency cash were about US$533 million, representing more than three times the actual reserve money.
The Reserve Bank continues to actively pursue a strategy to accumulate foreign reserves to build an adequate buffer for ZiG stability and provide sufficient import cover in the future.
Importantly, the available reserves fully cover the entire local currency ZiG deposits held by banks
Q: Could you provide an update on the current gold reserves held by the Reserve Bank of Zimbabwe?
A: The Reserve Bank’s gold reserve holdings have steadily increased due to the bank’s reserve accumulation strategy, which has enhanced both foreign currency and gold holdings.
As at January 9, 2025, gold holdings stood at 2,67 tonnes valued at about US$228 million.
Q: Concerns have been raised about how the current tight liquidity stance by the bank could be contributing to further dollarisation. What measures are you implementing to address this and encourage the use of the ZiG?
A: From September 2024, when the RBZ implemented the new measures, the money market has, on an aggregate basis, continued to trade in surplus.
However, we have observed that this excess liquidity is concentrated in a few banks and there is no vibrant interbank market trading, thereby creating artificial liquidity challenges.
In order to sterilise the excess liquidity held in a few banks, the Reserve Bank had to issue non-negotiable certificates of deposit (NNCDs), which are non-interest-bearing.
This money could have been deployed to productive lending if there was a vibrant interbank market.
Banks are, therefore, encouraged to trade among themselves.
Given the current money market position, the Reserve Bank is committed to maintaining the value of the ZiG and implementing measures that will preserve its transactional and store-of-value functions and support the de-dollarisation journey.
The RBZ will progressively increase the amount of ZiG in circulation to optimal levels, consistent with anticipated broad money growth supportive of economic activity.
The RBZ will ensure that the increase in local currency is fully covered by foreign reserves (gold, other precious metals and nostro balances), at all times, and in line with the foreign reserves accumulation strategy.
Some of the measures to encourage trading using the ZiG include the following:
Making available liquidity management instruments, such as the intra-day facility and overnight window, to support the smooth functioning of the interbank market and guarantee settlement finality;
The promotion of the broader use of the domestic currency within the economy. A key development is the recent Government gazette, which established a law allowing for the payment of QPDs (quarterly payment dates) for corporate tax through a 50/50 US dollar: ZiG arrangement. This measure is expected to significantly boost the utilisation of the local currency;
The recent introduction of the Targeted Finance Facility for the productive sectors to augment market liquidity; and
Continued accumulation of foreign reserve assets to the international benchmark of between five to six months import cover to engender medium-term stability of the currency in line with increased transactions in local currency.
Q: What are the Reserve Bank of Zimbabwe’s inflation projections for the year 2025?
A: In line with the statutory requirements, the RBZ will be issuing its Monetary Policy Statement soon.
Inflation projections for the year 2025 will, therefore, be based on past observed and declining inflation trends, envisaged economic performance and the current monetary policy stance.
Q: There appears to be a growing demand for higher denominations of ZiG notes. When can we expect the bank to release these notes to improve efficiency of cash transactions?
A: The Reserve Bank is aware of the evolving cash needs of the transacting public and the economy.
In this regard, the Reserve Bank continuously monitors currency usage patterns, including the demand for various denominations, to ensure that the currency in circulation is enough to facilitate transactions efficiently and at the same time maintaining price stability.
Plans to introduce higher denominations are underway and the amount to be introduced will be optimal and consistent with the envisaged economic activity.
Going forward, the Reserve Bank expects to progressively increase the proportion of cash to total deposits to 5 percent, which is close to countries with similar economic structures in the region.
The envisaged 5 percent will be adequate to meet cash on demand and balance the country’s cash-lite thrust in line with financial innovation.
It is important to take cognisance of the increase in the use of digital or electronic payment methods over cash.
This has resulted in a reduction in the demand for cash and lowered the proportion of cash in circulation to broad money.
In this regard, the Reserve Bank will continue to push for a cash-lite society through promoting the use of digital payment platforms, which offer a secure and efficient alternative to cash transactions. The Reserve Bank remains committed to addressing the needs of all stakeholders and will provide frequent updates regarding the introduction of higher denominations.
Q: What is the current value of currency (notes and coins) in circulation within the Zimbabwean market?
A: As at January 9, 2025, the total cumulative ZiG issued by the Reserve Bank to the market amounted to over ZiG183 million, which translates to about 5,59 percent of reserve money.
It is essential to note that not all currency issued is circulating in the market as some of it is held by banks.
The Reserve Bank has also been making use of the Homelink (Pvt) Limited in making sure that the public accesses cash conveniently.
As alluded to above, the quantity of cash in circulation will continue to be reviewed in line with the economic fundamentals.
Q: Could you outline the preparations currently underway for the upcoming audit of ZiG reserves as outlined in your inaugural Monetary Policy Statement?
A: The Reserve Bank will facilitate the audit of the mineral reserves backing the ZiG in accordance with the provisions of SI 60 of 2024, which mandates that the minerals be subjected to an independent audit once in a calendar year by external auditors.
The Reserve Bank’s external auditors have already commenced the audit of the mineral reserves as part of their routine annual audits of the Reserve Bank of Zimbabwe.
Q: There appears to be a stronger demand for the US dollar in the informal market, a development that is driving further dollarisation. What specific measures are you taking to increase the appetite for the ZiG within this crucial sector of the economy?
A: The Reserve Bank remains fully committed to ensuring that the use of ZiG increases in the economy, including the informal sector.
The current strategy to increase the ZiG uptake in the informal sector is anchored around building confidence in the use of local currency.
The stability of the ZiG exchange rate which has been realised since October 2024 is a critical step towards building confidence in the currency.
Furthermore, a significant portion of goods sold in the informal sector are sourced from local manufacturers who demand foreign currency for their products.
To alleviate this problem and to motivate demand for local currency, as of July 1, 2024, the Government, through the Finance Act of 2024, requires individuals and companies to pay tax in both local and foreign currency on a 50-50 basis if more than 50 percent of their income is received in foreign currency.
This arrangement compels companies to accept the ZiG for payments of goods and services to meet tax obligations.
The Reserve Bank’s policy measures to engender price and exchange rate stability in the macro-economy will overtime enhance the appeal of ZiG for transacting and store-of-value purposes, including in the informal sector.
The reserve accumulation strategy by the Reserve Bank will make it easier for economic agents to convert and easily switch between ZiG and the US dollar.
The Reserve Bank, therefore, envisages a situation in the medium term where economic agents will prefer to hold as well as trade in local currency.
Q: The misalignment between the formal market exchange rate and the parallel market exchange rate appears to be affecting formal businesses that are legally required to transact in the local currency while benefiting informal traders who deal exclusively in US dollars. What specific measures are you considering to address this disparity and support formal businesses operating within the legal framework?
A: The official and parallel market exchange rates have been stable since October 2024, with the premium significantly falling from levels recorded in September 2024.
The interbank market is operating under a willing-buyer, willing-seller (WBWS) arrangement; as such, the Reserve Bank allows the process of price discovery to take effect.
The Reserve Bank has made foreign currency available to formal businesses and will continue to honour all genuine and bona fide import invoices.
From April to December 2024, the Reserve Bank supplied over US$400 million, representing over 80 percent of foreign currency pipeline demand in the interbank market.
The foreign currency intervention has, in many instances, exceeded the pipeline demand.
Q: How many businesses were sanctioned by the Financial Intelligence Unit (FIU) for refusing to trade in the local currency last year? What sort of fines were levied on them? And how pervasive is this problem of non-compliance with currency regulations within the Zimbabwean economy?
A: The FIU sanctioned 226 traders in 2024 for either refusing to accept ZiG or for converting prices at parallel market rates.
Of the total, 191 traders were issued with fines, while 35, whose violations were deemed minor, were issued with warning letters.
The stability of ZiG against the US dollar has resulted in increased confidence in the local currency, in turn resulting in improved levels of ZiG acceptance and compliance by traders.
Compliance levels are greater in the formal sector, while ZiG uptake has been slower in the informal sector.
Compliance by smaller and informal traders is, however, expected to improve in 2025 in tandem with increased levels of confidence in the ZiG.
Online Reporter