Zimbabwe should not expect any further major policy shockers following the re-introduction of the Zimbabwe dollar, with the focus now shifting towards growing the economy and creating jobs, according to Finance and Economic Development Minister Professor Mthuli Ncube.
In an exclusive interview with Business Weekly on Wednesday, Mthuli said that he was happy that the Government moved “quite fast” on major currency reforms as any delays would have prolonged market volatility and uncertainty.
As from June 24, 2019, the Government declared the RTGS dollar (Zimdollar) the sole legal tender, effectively abandoning multi-currency regime, which Zimbabwe adopted in 2009 when hyperinflation rendered the Zimbabwean currency worthless.
The RTGS dollar was introduced in February as part of ongoing currency reforms, which began in October last year following the separation of FCA (nostro) and RTGS accounts.
The next step was abolishment of 1:1 fixed exchange rate after the Reserve Bank of Zimbabwe introduced the interbank market. Last week, the Government finally announced that the United States dollar, alongside the South African rand, Botswana pula and other foreign currencies were no longer legal tender in Zimbabwe.
The move also averted the country from plunging into full re-dollarisation when the economy did not have enough US dollars to support this. The continued depreciation of the local currency against the US dollar had seen most business preferring to quote prices in US dollars in a country were the majority are paid RTGS dollars.
Mthuli said the currency reforms were essentially over and “the only small thing” left was introducing proper bank notes to replace the existing bonds notes and coins.
“We have made tremendous progress in the currency reforms agenda, which started on the first of October after separation of the FCAs and that was followed with the review of the fuel prices in January . . . and the third step was the monetary policy review on the 28th of February, which introduced the interbank market when we then moved from one to one fixed exchange rate,” said Mthuli.
“We have now introduced the domestic currency; Zimbabwe dollar and disallowed the used of other currencies within our border. Even though you can hang on to the US dollars; in your pocket, in your bank account . . . in the shops, you have to use the local Zim dollar, which at the moment is defined as a combination of the bond notes and the RTGS dollars. Of course, we had to move quite fast to complete the project of current reforms because any delay causes volatility and uncertainty.
“For now there is sanity in the parallel market. We have had to institute other measures such as raising interest rates to deal with speculative attacks on the currency and also to deal with the inflation. The pain was inevitable. But in my view, we should not see any kind of big policy changes on the macro-economic front going forward.
“I think it is fair to say this was the biggest policy change. Going forward in terms of macro policies it is consolidation, then we can put this behind us and then focus on growth, jobs, and broader development. Because we are done with these broader macro reforms. We want to put these behind us,” added Mthuli.
The Treasury chief said the sharp hike of the central bank’s accommodation rate, from 15 percent to 50 percent per annum, was meant to discourage borrowing for purposes of speculative currency trading.
In addition, the finance minister said the Reserve Bank of Zimbabwe can now effectively defend the value of the local currency, with a domestic currency in place as sole legal tender, since it will now have the full kit of monetary policy instruments at its disposal.
Government, through the Reserve Bank, has also indicated that it will provide US$330 million worth of letters of credit to support efficient functioning of the interbank market and reduce further pressure on demand for forex on the black market.
Further, the Government last week removed administrative limits on bureaux de change and the 2,5 percent maximum profit margin on forex trading by banks, as part of further measures to promote a free-floating interbank foreign currency system.
Price volatility induced by pass through effects of parallel market foreign exchange rate premiums on prices saw inflation keeping a northward trajectory, hitting 97,85 percent for April, prompting Government workers to demand US dollar salaries as more retailers sold in forex.
The currency reforms form part of major economic reforms Minister Ncube targeted under Government’s Transitional Stabilisation Programme (TSP), which included reining in runaway Government expenditure, budget and current account deficits.
Following the adoption of a mono-domestic currency for local transactions, parallel and official exchange rates have since converged, as per authorities’ expectations, a development likely to result in increased flow of foreign currency into formal systems. – Business Weekly
