Zimbabwe’s forex deposits hit US$1,85bn

HARARE – Zimbabwe’s foreign currency deposits bulked to more than US$1,85 billion by end of October 2021, latest figures from the Reserve Bank of Zimbabwe (RBZ) show. 

This is over and above the undisclosed figures in foreign currency reserves Treasury has in its volts. 

However, despite the country accumulating such impressive US dollar deposits in its foreign currency accounts (FCAs), questions are still being raised why is it still reporting forex challenges and a depreciating local currency.

According to the RBZ’s latest report for the month of October 2021, foreign currency deposits in broad money grew by 83,68 percent, from $97,62 billion in October 2020 to $179,31 billion in October 2021.    

“This was largely due to an increase in the value of FCAs from US$ 1,20 billion in October 2020 to US$1.85 billion in October 2021” reads the RBZ’s monthly report for October, the last one to be released by the central bank last year. 

Overall, broad money stood at $417,56 billion in October 2021, an increase of 145,95 percent compared to the money stock in October 2020.  

This was made up of local currency deposits, 56,53 percent; foreign currency deposits, 42,94 percent; and currency in circulation, 0,53 percent.  

The growth in foreign currency deposits has, however, failed to stem the depreciation of the Zimbabwe dollar now trading at  an exchange rate of 108 to the US dollar on the official auction system and above 220 at the widely used parallel market.

Market watchers have blamed the auction system as an inefficient system that has failed in its role as a price discovery mechanism for a formal credible sustainable reference rate.

Efforts to have banks create and trade foreign currency on an open platform also failed in 2019.

Other market players have, however, blamed excess liquidity in the market as the biggest factor behind local currency depreciation. 

According to the central bank’s report, on an annual basis, local currency deposits included in broad money registered a growth of 230,21 percent, while currency in circulation increased by 108,17 percent. The annual growth in broad money largely reflected increases of 179,32 percent, 246,62 percent, and 211,68 percent in net claims on Government, public non-financial corporations and credit to the private sector, respectively.

Credit to the private sector was mainly extended towards agriculture, 29,87 percent; households, 21,95 percent; distribution, 12,36 percent; manufacturing, 11,03 percent; financial organisations, 10,46 percent; and mining, 6,25 percent. On a month-on-month basis, broad money increased by $52,96 billion or 14,53 percent, from $364,60 billion recorded in September 2021.  

This was largely reflected in increases of $28,25 billion and $22,36 billion in foreign currency deposits and local currency transferable deposits, respectively. Domestic credit increased by 16,38 percent, to $262,34 billion, during the month under review.  

The growth in domestic credit was, largely driven by increases in banking system net claims on government, 36,9 percent; public non-financial corporations, 17,16 percent; and credit to the private sector, 11,13 percent. 

Source: Herald