HARARE – Zimbabwe’s central bank is considering devaluing its quasi-currency as part of a raft of reforms to the nation’s foreign-exchange system, according to a central bank official.
Depreciating the so-called bond notes would be an acknowledgment that the official one-for-one exchange rate is no longer sustainable. It would also mark the second major overhaul to Zimbabwe’s currency regime since October, when the central bank ordered lenders to separate deposits of US dollars and electronic money known as RTGS$.
Since then the cash shortage has led to the closing of factories, the more than doubling of fuel prices to the highest in the world and a surge in inflation. Protests in January left at least 17 people dead.
The Reserve Bank of Zimbabwe may unveil the measures in its Monetary Policy Statement to be announced on Wednesday, said the official, who asked not to be identified because he’s not authorised to speak to the media. Reserve Bank of Zimbabwe Governor John Mangudya was said to be unavailable when his office was contacted.
The decision to adjust the value of bond notes follows submissions by the business community, company officials and individuals about how to formalise foreign-exchange trading in Zimbabwe, the official said. The government supports the move because it accepts the official one-for-one peg to the dollar isn’t working, he said.
Bond notes currently trade at 3,61 per dollar on the black market, according to marketwatch.co.zw, a website run by financial analysts. RTGS$ are valued at about 3,75 per dollar, it said.
Zimbabwe introduced the bond notes in 2016 to ease a crippling shortage of cash. Their debut came seven years after the nation scrapped its own currency in the wake of hyperinflation and adopted a basket of foreign units as legal tender.
While the government says bond notes are equal to the US dollar, they’re not accepted by foreign suppliers. That’s resulted in payment problems for companies such as gold miners and grain millers.
Shops charge customers different prices depending on which unit they use to pay, offering big discounts to those who use real US dollars
Litmus test for Mnangagwa
History is known to repeat itself.
If Zimbabwe’s monetary authorities did not take a leaf from the market distortions brought by the infamous mid-term monetary policy announcements of October 1, 2018 and fiscal measures undertaken by Finance Minister Mthuli Ncube, the country could be headed for doom.
The 2018 mid-term monetary policy introduced a two percent tax on all electronic transactions as part of efforts to realign the nation’s tax base to a growing informal economy and reduce the debt to fund expenditures.
What followed were ripple price increases as traders moved in to hedge against any loss of business value through initiating price increases.
A loaf of bread that cost US$1 before these interventions increased to US$1,85 an 85 percent rise.
At the 2018 mid-term monetary policy presentation in October, Ncube said the economy was facing foreign currency and cash shortages, emerging inflationary pressures, unsustainably high budget and current account deficits
He warned over poor infrastructure and social service delivery.
He singled out the country’s unsustainably high budget deficits as the centre piece of the highlighted challenges.
Prior to the 2018 mid-term monetary policy and fiscal interventions, Zimbabwe’s annual inflation stood at 5,39 percent in September 2018.
The country’s annual inflation rate rose to 56,9 percent in January 2019, the highest since December 2009.
Ncube attributes rising inflationary pressures to parallel exchange rates.
Most distressed companies are sourcing foreign currency from the black market to fund operations because many of them are not on the foreign currency priority list introduced in 2016.
The Currency Confusion
Zimbabwe currently operates on a three tier pricing system comprising of the dorminant United States dollar, the surrogate bond notes introduced in November 2016 to ease acute shortages of cash, and the real time gross settlement (RTGS).
The three currencies trade at a rate of 1 part of United States Dollar to 3,4 parts of bond notes to four parts of the RTGS money respectively on the parallel market at a time formal banks are regulated by law to treat them at par to each other.
The South African rand is also in circulation as an alternative currency.
Pressure is now on monetary authorities to address this currency confusion at the least possible impact to the already frail Zimbabwean economy.
Zimbabwe Statistical Dashboard Ahead of 2019 Monetary Policy Statement
As technocrats and political analysts speculate over the Apex bank’s monetary policy interventions today and their impact on Zimbabwe’s economy, what remains stubborn are the statistical facts above. Will the monetary policy interventions improve or worsen the country’s national inflation rate?
Are we going to see sanity prevailing in the financial services sector regarding exchange rates and foreign currency availability?
Is Zimbabwe going to close the foreign reserve deficit to take manufacturers out of the doldrums? Will the cost of bread and cooking oil go down in a big nod of confidence to the monetary policy?
Whilst the nation psyches ahead of the monetary policy statement presentation by the RBZ governor, rival leaders of main political parties in Zimbabwe have already set stages for rallies over the coming weeks as they take their legitimacy battle to the people. At this juncture, Zimbabwe is indeed at crossroads with itself – Bloomberg. Additional Reporting – ENN
