The Sunday Mail
I do not envy the Minister of Finance and Economic Development, Professor Mthuli Ncube, and the Governor of the Reserve Bank of Zimbabwe, Dr John Mangudya.
The two gentlemen must have a torrid moment.
On the one hand, they are being blamed for “failing” to stabilize the local currency which is sliding in the parallel market at such a pace, while on the other hand, they have to deal with a stubborn black market gang which refuses to budge and has gone rogue.
The standoff has been going on for a while and it’s stopped being funny.
All eyes are on the monetary and fiscal authorities to wave the magic wand and restore the value of the local currency, to win a war that has haunted the economy for some time and has even become more vicious over the of the last few months.
The Zimbabwean dollar has been the subject of relentless bashing that has left it trading at an average of 800 to 1 US dollar since yesterday, and threatens to tumble further.
But the questions that cross the mind are: Who or what determines the daily rate in the illegal market?
What are the considerations at play?
Is the black market so complicated that its bubble cannot burst?
Who benefits from all this to the point of sacrificing the economy and the generality of Zimbabweans through such greed?
What does it take to make all this stop?
On an ordinary day, this should have been a complex situation with no easy answers to these questions, but they beckon.
At one point early this year, the Zimdollar appeared to be holding steady, stabilizing somewhat since the introduction of the FX auction market in 2020.
However, without warning, it began to slide and seemed to be in freefall.
This hurts the economy in many ways, most of which have already been questioned here.
The bottom line is that the marked black must be toned down so that stability can return.
A number of interventions have been employed and we believe the situation will ease as soon as possible.
Let’s review some of the measures put in place by the two gentlemen through the institutions they represent.
l The RBZ has banned foreign payments from third countries for imports, except for fuel, to encourage the transfer of export earnings
l The central bank has also adopted a tighter monetary policy (Hawkish), which has seen quarterly money supply growth shrink several times from 22.5% to 0% currently.
l It raised the key bank rate, the benchmark for all commercial lending by banks, from around 50% in 2021 to 200% to thwart speculative borrowing
l Increase in reserve requirement thresholds to limit the flow of cash into the market, which is used to attack the currency
l Introduced the auction, which has disbursed over $3.3 billion since its inception in June 2020, to improve access to forex, determine the market-based exchange rate and reduce black market activity
l Limits were introduced on mobile money transfers and tougher regulations governing them to tighten the channels used to conduct parallel market transactions and attacks on the national currency
l Creation of foreign exchange bureaus to expand the formal market for foreign exchange trading, including by individuals and for small value transactions
l Introduction of interbank forex trading to enable more liberal forex trading to engender trust and bridge the gap between the official exchange rate and the parallel market exchange rate
l The government now pays 50% of contracts for critical public infrastructure programs in foreign currency to reduce the flow of local currency cash to the market.
l The Treasury staggered local currency payments for public infrastructure projects to manage money supply growth.
l The Treasury has enshrined in law a multi-currency regime, primarily USD and Zimdollar, to increase confidence. This is for the duration of the National Development Strategy, the first phase of which ends in 2025.
l Legal pricing system in local currency based on the interbank rate, for which the margins can only be 10% higher than the prevailing interbank rate.
l Allowed the payment of duties and taxes, including up to 50% of royalties, and other statutory payments in local currency to promote wider use and desirability of Zimdollar.
l Introduction of a 4% tax on USD transfers to encourage greater use of the local currency in domestic transactions.
l Minimum vesting period of 180 days on the stock exchange Investments to fill gaps in arbitrage and speculative transactions, tightening of administrative conditions for stock transactions, including prohibition of opening and transfer between sub-accounts
The recent introduction of gold coins, which is expected to be issued this week, should also mop up excess liquidity in the market, thereby generating stability.
Debate continues to rage regarding other possible interventions to bring stability to the currency market. Zimbabwe must not lose the gain made in the economy since the advent of the Second Republic.
Last year the economy grew by 7.8% and hopes were high that GDP growth of 5.5% would be achieved this year.
However, the current rise in inflation threatens to wipe these targets off the radar. These sharp price increases have affected households and businesses, but the government remains committed to bringing this under control soon.
Engagements between government, business and labor in the Tripartite Negotiating Forum should yield results, but it is important that all parties realize the urgency of the issue,
Zimbabwe cannot afford a reversal of the gains made in recent years. It took a lot to realize the gains after decades of challenges.
It is incumbent upon every Zimbabwean, especially those who have made their trade, to determine parallel market rates, sober up and see the benefits for all of a stable local currency.
A critical meeting of minds is needed at this point. The doomsayers and enemies of progress are spoiling further deterioration of the Zimdollar, but we believe the illegal market will give way soon.
In God I believe.