In a fairly recent contribution “Call for Policy Consolidation” published in the Business Weekly, authorities were advised on the need to adopt a smart approach to policy direction that would harmonise the various directives that were issued between 2018 and present.
In particular, the often conflicting monetary policy directives issued through several statutory instruments needed a complete overhaul to realign them with the factual scenario obtaining on the market.
Authorities were urged to acknowledge the emergence of a duo currency economy with the United States dollar (US$) and the Zimbabwe dollar (ZW$) in concurrent use and the efficacies of adopting this as a strategy to build long term acceptance of the local currency.
It is refreshing to note that in fact the authorities were already on this route as publicly announced in the press statement of March 11, 2020 where the Minister of Finance and Economic, Professor Mthuli Ncube, advised of the establishment of a Currency Stabilisation Task Force.
Among many objectives, the key role of the task force will be to review and monitor inflation and stabilise the exchange rate. They will also ensure the expeditious implementation of the policy measures announced in the statement.
In the announcement, noted positives included:
(1) There is a tacit acknowledgement of the duo currency route that economists have long called for.
(2) The authorities acknowledge that the ZW$ needed the Government to underpin its use through implementing payment of taxes, duties, fees and other government charges in local currency
(3) The bureaux de change limits have been removed and these can now, with immediate effect, buy and sell both US$ and ZW$ cash to the Central Bank. (Implicit on this rule is that any member of the public can now have direct access to US$ from the bureaux for any of their intended purposes).
While at this point, we note a misconception that has arisen in the market regarding the statement on the 1:1 principle and needs to be clarified. Point 2:d of the statement advises that bureaux will be able to purchase foreign currency from the Central Bank at the ruling interbank rate and they will also be able to purchase ZW$ cash at 1:1. The misconception is that some have taken this to mean bureaux will purchase foreign currency at 1:1.
(4) The complete liberalisation of the foreign exchange market to be enhanced by the Reuters system that will improve transparency and harmonise all trades.
(5) Business actors have been concerned about the apparent lack of control of money supply growth which has been the main contributing factor to inflation and exchange rate volatility of the local currency.
The Minister advised that the Government will now move onto a cash budget buttressed by that currently the fiscus has $3 billion. This should check the tendency to finance budget deficits through increasing money supply and hence remove the attendant inflation and exchange rate risks.
(6) The issue of the local currency being traded as a commodity by unscrupulous business man and their agents and long having been a source of complaints by consumers has now been placed under the spotlight and will be dealt with. This should go a long way to de commoditise the ZW$. The moves above are commendable although a few other areas could have been improved. It is advisable for the authorities to consider repealing the SI42 and reorganise the rules completely afresh to take into consideration the now apparently accepted duo currency regime as opposed to a mono currency.
The authorities are still to be commended for being brave enough to face to the realities of the market.
The liberalisation of the bureaux de change is a smart way to tame the run-away parallel market.
As a result our anticipation is that while the parallel exchange rate had reached $40: US$1 and the interbank rate held steady at $19: US$1, the move above should initially see the interbank rate creep up in order to attract the trade flow from the bureaux and hence indirectly away from the parallel market.
This should gradually create a harmonised and transparent foreign exchange market resulting in the eventual convergence of the two market rates. This is a commendable way of dealing with the parallel market as opposed to the physical battles between the law enforcement agencies and members of the public doing transactions at street corners.
Lastly the composition of the task force could have been enhanced by including members from the business, industry and other economic sectors.
The inclusion of PAC might pose the risk of tainting the good objectives of the task force with political connotations, although we acknowledge it provides a direct route to the President.
We still reiterate that for now we should focus more on the economy as a nation building rallying point away from politics and elections which have tended to polarize the country. We repeat the now famous adage “It’s the economy stupid” by Bill Clinton.
Misheck is a former expatriate banker based in several SADC countries and currently works as a corporate advisory services consultant. He is the founder of Rucabel Investments Private Limited, an investment company based in Zimbabwe. He is a member and past Vice President of the Zimbabwe Economics Society. He can be contacted on (263) 777052004/ 712808140 [email protected] hotmail.com Linkedin: https://www.linkedin.com/in/misheckugaro. Twitter: @twitcagan.com