No printing press needed to fund exporter forex surrenders

Excessive printing of money has been blamed for the continued weakening of the domestic currency over the years. New RBZ Governor Dr John Mushayavanhu says printing will not happen under his watch
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The Reserve Bank of Zimbabwe (RBZ) has taken steps to alleviate anxieties surrounding the potential need to print money to finance the purchase of foreign currency surrendered by exporters.

This requirement, mandated by law, obliges exporters to relinquish a portion (currently 25 percent) of their foreign earnings in exchange for the local currency, known as ZiG.

The source of these concerns lies in the current amount of ZiG in circulation, which the central bank has disclosed to be equivalent to only US$80 million.

Market observers expressed apprehension about this figure’s adequacy in covering the estimated US$150 million anticipated in foreign currency surrenders from exporters.

This potential shortfall, some argued, might compel the RBZ to resort to printing additional ZiG, potentially fuelling inflation and currency depreciation.

However, RBZ Governor Dr John Mushayavanhu has assured the public that there will be no need for printing money.

He elaborated on the mechanisms in place to ensure the smooth financing of these exporter currency surrenders.

Dr Mushayavanhu outlined a two-part strategy for managing the foreign currency surrendered by exporters.

As a market-driven mechanism, half of the 25 percent surrendered currency will be immediately sold to other banks within the Zimbabwean financial system. This process functions with a neutral cash flow impact.

In simpler terms, one bank initiates the surrender by providing the foreign currency. Another bank then purchases this surrendered currency using ZiG, effectively injecting the local currency back into the system.

This cyclical exchange eliminates the need for the central bank to print new ZiG to fund these transactions.

“The Central Bank will merely be a facilitator to the transaction. In other words 50 percent of the surrender is market funded and will not result in an increase in the amount of ZiG in circulation,” Dr Mushayavanhu said in a text to Business Weekly.

He said the remaining 50 percent of the surrendered foreign currency will be purchased directly by Treasury.

This approach aligns with how previous foreign currency obligations were handled. The RBZ acts as a facilitator, debiting the Treasury’s ZiG account and utilising those funds to pay the bank that received the surrendered currency from the exporter.

This process, once again, does not necessitate an increase in the total amount of ZiG circulating within the economy, Dr Mushayavanhu explained.

“The role of Rbz is to debit Treasury’s ZiG account and pay the exporters bank in exchange for the surrender. Again, there is no increase in the amount of ZiG in circulation.”

Treasury’s utilisation plan

Dr Mushayavanhu further clarified the Treasury’s intended use for the foreign currency acquired through this process.

The plan is to allocate half of these funds towards fulfilling Zimbabwe’s existing foreign obligations. The remaining half will be directed towards bolstering the foreign currency reserves held by the RBZ.

“Treasury has committed to use half of the 50 percent to meet its foreign obligations and the other half will be used to boost RBZ reserves.”

This strategy aims to strengthen the country’s overall foreign currency position.

By implementing these measures, the RBZ hopes to address concerns regarding potential inflationary pressures associated with increased money printing, said Trigrams Investment analyst Walter Mandeya.

“This approach emphasises utilising existing financial mechanisms. One part relies on a market-driven solution for a portion of the foreign currency surrenders, while the other involves the Treasury directly absorbing the remaining amount using existing ZiG funds.