Ashly DhaniNote from ZNCC
The Zimbabwe National Chamber of Commerce appreciates the continued recognition and importance that the Reserve Bank of Zimbabwe (RBZ) places on engaging the private sector through the chamber.
The continued engagements between the chamber and the bank testify to the exciting relationship between the private sector and the monetary authorities.
As the chamber, we continue to represent the interests of the business community and we continue to knock on the bank’s doors towards the realisation of a stable macroeconomic environment and sound financial system.
Following the April 5, 2024 Monetary Policy Statement, we acknowledge the great improvements in the operating environment and we take this opportunity to submit our policy suggestions/concerns for review going forward and consideration into the 2024 mid-term monetary policy statement to be presented in the coming few weeks.
We appreciate the unfading presence of the bank’s representatives at our events and one of our 2024 annual congress resolutions was that we have to continuously engage to ensure that the structured currency framework is a success and panacea to our prolonged currency crisis.
The mid-term mps focus areas are:
Money supply management
Excessive monetary expansion, regardless of source, is both a cause and a consequence of inflation. It drives up demand, costs and prices while driving the exchange rate lower.
As a result, firms have to borrow more to fund increased working capital and wages, thereby further increasing the money supply.
Maintaining efficient money supply management to support the stability of the ZWG currency is critical. Therefore, the central bank should ensure that money supply growth aligns with reserves to prevent inflationary pressures and build confidence in the new currency.
Market-determined exchange rate system
It is our observation that when talking about the exchange rate, any reference to gold prices is seen as an attempt to manage the exchange rate, given that gold reserves are used as a reference benchmark.
In this regard, it may be prudent to desist from linking the exchange rate to gold or commodity prices and educate the market that the exchange rate is determined by the willing buyer-willing-seller (WBWS) system, not by gold prices.
Today, very few countries fixate on the exchange rate as is the case in Zimbabwe. A country’s exchange rate reflects its economic performance, monetary growth, inflation, competitiveness and export basket components, along with market sentiments.
While Zimbabwe has made strides in changing the currency, the authorities should not ignore the underlying real forces at play — economic, political and social. As such, the assertion that the ZWG exchange rate reflects movements in the gold price contradicts official claims that the rate is determined by willing buyers and willing sellers.
We commend the bank for moving towards full liberalisation of the foreign exchange market. However, market sentiment suggests that the current framework resembles a controlled foreign exchange market.
Therefore, we call for the bank to walk the talk. Consistent implementation of a market-determined exchange rate system will provide a more predictable and stable economic environment, reducing speculative market behaviours.
The bank should improve the availability and accessibility of foreign currency at banks for importers.
Ensuring transparent and efficient processes for businesses to access foreign currency, is crucial for import transactions and economic stability.
The recent injection of US$50 million into the interbank market shows the bank’s commitment to maintaining stability in the foreign exchange market.
Building and maintaining reserves
Focus on building and maintaining sufficient reserves, including gold and foreign currency, to back the ZWG and other financial instruments, is critical ensuring economic resilience.
Build confidence in the ZWG
The bank is urged to regularly and transparently release information regarding the ZWG to build public and business confidence in the currency.
We commend the announcements by the Ministry of Finance, Economic Development and Investment Promotion for amending the legislative framework to support the wide use of the ZWG, regarding quarterly payments (QPDs) and other user fees and levies.
We urge the bank to regularly engage commercial banks to improve the availability and accessibility of ZWG notes and coins, encouraging their use in strategic sectors such as fuel and essential goods.
Blocking businesses from applying for and accessing forex simply because their USD balance appears healthy sends a negative signal to the market.
The market should dictate who gets loans or forex under the Willing-Buyer-Willing-Seller framework, without the Financial Intelligence Unit (FIU) being a key player in the banking ecosystem.
The bank should always promote accountability and transparency in all financial and economic activities to instil confidence among businesses and investors. The use of the ZWG will remain constrained by the mere fact that businesses, labour and government are paying for goods and services (rent, transport, mostly in foreign currency.)
Information dissemination
The monetary authorities should ensure the timely and proactive, rather than reactive release of accurate information regarding the currency market and reserve status. Transparency in communication from the RBZ will help restore and buttress faith in the currency and economic policies.
The central bank should take the lead in defining the currency path. Politicians’ statements about discarding the use of USD sooner than the law and market development dictate can only be destabilising and cause market pandemonium.
Legislative amendments
The chamber urges the RBZ to engage with Parliament to review and support relevant acts for the full adoption of the ZWG. Ensure policy consistency to build long-term confidence in the local currency and economic stability.
Savings essential for growth
Loose fiscal and monetary policies — specifically triple-digit inflation and hugely negative real interest rates — deter savings or divert them into financing civil servant wages and agricultural subsidies.
Individual households and corporates have been shying away from formal financial institutions due to user fees and levies and thus, the major chunk of hard cash (foreign currency) is circulating in the informal sector, promoting the “National Mattress Bank”.
Most willing savers have been buying the Mosi-oa-Tunya gold coin/central bank digital token in anticipation that after 180 days, they would redeem their investment in foreign currency (short-term in nature).
An ideal scenario should result in savings that translate to investments in commercial and hard infrastructure sectors. The bigger chunk is being channelled into the real estate sector.
Fungibility and convertibility of the ZWG
The chamber appreciates the bank for moving with speed to have the local currency ISO certified. While media awareness campaigns are being rolled around the country, we urge the bank to also raise ZWG awareness among the regional partners to instill confidence that the ZWG is now the currency for Zimbabwe.
This is critical, especially with the current RBZ’s motion to join and operationalise the Pan-African Payments and Settlement System. The ZWG should be tradeable, at least regionally and for its long-term survival, it should be universally accepted as a means of payment for all products locally.
Conclusion
In conclusion, the ZNCC reiterates its commitment to fostering a stable macroeconomic environment and a sound financial system through continuous engagement with the RBZ.
The steps taken by the RBZ, particularly those outlined in the April 5, 2024 Monetary Policy Statement, reflect significant improvements in the operating environment. However, we emphasise the need for sustained and consistent policies that align with market-determined principles to ensure economic stability and growth.
Efficient money supply management, a transparent and market-determined exchange rate system, and building and maintaining robust reserves are critical components for the success of the ZWG currency.
The RBZ’s initiatives, such as the injection of US$50 million into the interbank market, demonstrate a commitment to stability, but further efforts are necessary to enhance the availability and accessibility of foreign currency for importers.
Public confidence in the ZWG must be bolstered through regular and transparent communication from the RBZ, legislative support for the widespread adoption of the ZWG, and the promotion of its fungibility and convertibility.
The ZNCC urges the RBZ to lead the way in defining a clear currency path, free from political interference, and to promote accountability and transparency in all financial activities. By addressing these focus areas, we believe that Zimbabwe can achieve a stable and predictable economic environment, conducive to business growth and development. The ZNCC remains steadfast in its mission to advocate for policies that benefit the business community and contribute to the nation’s economic prosperity.
This article was prepared by the ZNCC for Business Weekly.
Bongani Ndlovu