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OPINION: The End Of The Multi-Currency Era

On Monday the 24th of June, the Government of Zimbabwe woke up and ambushed the country with the SI 142/2019 known as Zimbabwe (Legal Tender) Regulations that states the ban of multicurrency but only the use of the “Zimbabwe dollar”. The new Zimbabwe dollar is to be the only tradable currency in the country, which means that pricing your goods in USD is now a crime.

By Tapiwanashe Mangwiro

The gazetted instrument says that the new Zimbabwe dollar is par with both the electronic money (RTGS) and the quasi fiscal money the Bond note. In essence the ZWL is 1:1 with the RTGS dollar. This then marks the return of the Zimbabwe dollar after ten years of being rendered obsolete and valueless.

The Statutory Instrument is a tool to stimulate the use banking system. The notable points out of the SI are exclusions on the payment of duty, where importers still need to use forex to pay for duty for luxurious products. This is a way to still hold grip on imports which were blamed for the net outflow of foreign currency.

This SI unit was supplemented by the Reserve Bank of Zimbabwe which issued it’s own statement, to further help the ban on the Multicurrency system. This is because the authorities know that their plans are hinged on the functionality of the Interbank market (IBM). With the banks being allowed to charge their own spreads they hope that importers will get their forex on the IBM rather than the black market (BM). This eliminates the twinning process which was being used by banks to sell forex to companies or rather legalize the twinning process but through a formal process.

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This is a move that is being seen as a form of import substitution by reducing the cost of production since the companies are now not pegging costs against the US dollar but the local currency which is weaker than the US dollar. The move is trying to reduce prices of goods as said by the minister of finance Professor Mthuli Ncube earlier this month.

The move that FCA Nostro accounts are still functional means that people can still do international payments but for local transactions the IBM rate will be used for withdrawal of the funds. The IBM is said to be funded by the 50% of the retention ratio collected from exports.

The central bank has assumed the company debts at a value of 1:1 with the US dollar, as a way to drain liquidity from the market to the value of RTGs$1.2 billion. This is said to reduce the pressure on the greenback on the BM and the IBM. This also helps companies to concentrate on production and not on debt repayment.

The overnight lending rate was increased from 15% to 50%, the overnight rate provides an efficient method for banks to access short-term financing from central bank depositories. As the overnight rate is influenced by the central bank of a nation, it can be used as a good predictor for the movement of short-term interest rates for consumers in the broader economy. The higher the overnight rate, the more expensive it is to borrow money. So this means that we are going to get even higher or equal interest rates from the banks, as this is a move meant to reduce consumption borrowing and arbitraging on the BM due to the rising inflation. This makes borrowing mostly to be for production sector for boosting industries rather than for consumption.

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The instrument has also moved to curb capital flight through the stock market, by stating that all dual listed shares are to be disposed only after 90 days. This means that we’re now holding money in the system and helping companies raise capital as it should be on the stock market.

Conclusively this move is pure game theory, and the shocks will be felt in the short term as people and businesses panic and assess the functionality of the IBM. The onus is still on the central bank to make the forex available to fuel the IBM and the business community to embrace the official channel. This move is an exciting one but needs to be kept tight for progress to take place.

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