eBusiness Weekly
Golden Sibanda
Zimbabwean banks are currently sitting on nearly a billion United States dollars while the economy is being ravaged by the impact of a US dollar crunch and the pass through effects of steep parallel market foreign currency premiums on prices, according to Finance and Economic Development Minister Professor Mthuli Ncube.
Given this scenario, the Treasury chief believes that Zimbabwe has adequate foreign currency for its external payments obligations, but it is the inefficiency of the nascent interbank market that is causing acute shortages, which have fueled price volatility.
Until early 2016 and following dollarisation of the economy in February 2009, Zimbabwe had no US dollar liquidity issues under the multi-currency regime, which allowed the use of the British pound, Botswana pula and South African rand, even as the country did not have a forex trading market to facilitate efficient distribution.
Amid the dollar crunch, the escalating parallel market rates have torched a wild run of price increases since the Reserve Bank of Zimbabwe directed banks to separate balances of foreign currency (nostro) accounts and balances in real time gross settlement (RTGS) accounts starting from October last year, although officially the exchange rate remained at parity between the two currencies.
RBZ governor Dr John Mangudya said back then that intermingling of balances in FCAs and RTGS accounts was discouraging inflows of foreign currency into the economy when the country faced a crippling US dollar crunch.
At that point, Zimbabwe had a policy position that prescribed that the United States dollar ranked at par, that is to say exchanged 1 to 1, with the local currency, made up of electronic dollars (RTGS and mobile money balances), bond notes and coins.
Minister Ncube told Business Weekly early this week that banks were holding US$888 million, which was not finding its way on to the interbank market fast enough to whet the appetite of local importers of a wide range of foreign products.
In desperation, importers have alternatively resorted to getting hard currency on the parallel market where the money, due to overwhelming demand, sees the greenback exchanging hands at huge premiums, passed on to consumers in the form of high prices.
The extremely high demand for foreign currency and speculative trading in the currencies has seen the parallel market exchange rates changing constantly in a development that has driven inflation through the roof; 97,8 percent for May 2019.
However, Minister Ncube said while the country had enough foreign currency, an inefficient interbank market was the reason the country was experiencing shortages of forex, a structural flaw the Government said it was working relentlessly to correct.
With such a scenario, Zimbabwe’s major industries lobby group, the Confederation of Zimbabwe Industry (CZI), has started pushing for an independent foreign currency exchange market in the wake of a runaway exchange rate, the threat of re-dollarisation and rapid depreciation of the RTGS dollar value.
“There is the normal FACs, then there is the domestic corporate FACs and then the individuals (domestic) FCAs. The domestic corporate FCAs there is US$888 million. They have it in there, so there is no shortage of foreign currency,” Minister Ncube said.
Minister Ncube said the acute shortage of hard currency being experienced in the country was because the forex was not being offloaded on the interbank market fast enough for use by needy importers.
The Finance minister said that efforts were currently being made to fine tune the interbank market to ensure transparency and efficiency in the trading of foreign currencies in the country.
“That’s what we are fine tuning, the market needs to be fined tuned to get better; that is exactly what we are doing,” he said.
This also comes as industry has demanded that an independent body separate from banks, manages the interbank for better transparency.
This comes as there have been reports that banks were pairing a few particular clients outside of the interbank platform in the trading of foreign currency, which was shutting out the majority of customers seeking hard currency from the interbank market.
“They (industry) are demanding that let it be more transparent and more efficient,” he said.
In a draft paper prepared by the CZI’s economists’ roundtable, the business member organisation said Zimbabwe immediately needed a mechanism that allowed bankers to freely trade in a market administered by an independent person or body following challenges on the official foreign exchange market, the interbank market.
“It’s about efficiency, efficiency and efficiency and that is a good thing. By the way, things have been improving; more corporates have been able to access US dollars now from the interbank market.
“It’s still not 100 percent efficient, but we are making progress and now with this move, the mono-domestic currency, we will see a package around the currency being put in place by the central bank, such as raising interest rates to protect the value of the currency,” the minister said.
Through statutory instrument 142 of 2019, Government renamed local currency, which has since February 2019, been known as RTGS dollar, Zimbabwean dollar. The new measures form part of ongoing reforms, including of the currency, by Government under its transitional stabilisation programme (TSP). Through the same instrument Government also announced the abolishment of the multi-currency and restriction of transactions to the domestic unit, Zimbabwean dollar, to avoid redollarisation of the economy when there is no adequate supply of forex.
“That’s progress; that is what countries do. Why should Zimbabweans remain behind and hang on to the US dollar, the US dollar is not our currency,” the Finance minister said.
