Zimbabwe’s monetary and fiscal authorities have put in place measures to ensure enforcement of Statutory Instrument 142 of 2019, which effectively ended the multi-currency system and determined the “Zimbabwe dollar” as the sole legal trading currency in the country.
Last Monday, Treasury moved in to supplement the ongoing currency reforms by outlawing the use of foreign currencies for local transactions. However, indications are that there were some retailers and other economic players that have insisted on demanding payments in United States dollars.
Appearing before the Parliamentary Portfolio Committee on Budget and Finance yesterday, Reserve Bank of Zimbabwe (RBZ) governor Dr John Mangudya, said the enforcement strategies are already in place.
“There are many tools of enforcing Statutory Instrument 142 of 2019, including the Bank Use Promotion and Suppression of Money Laundering Act (Chapter 24:24), which was approved by the Parliament of Zimbabwe, the Financial Intelligence Unit (within the central bank), and members of the police force who are already seized with the matter to ensure that at least there is compliance and indeed enforceability of this matter,” said the governor.
“Enforcement is very possible and they have already started doing so to ensure that all local payments are made in the Zimbabwe dollar, and that payments offshore are done in US dollars.”
The Bank Use Promotion and Suppression of Money Laundering Act (Chapter 24:24), in particular is a law that promotes the use and suppresses the abuse of the local financial services system.
The re-introduction of the Zimbabwe dollar has been welcomed even from international quarters, with the International Monetary Fund (IMF) recently saying that the “adoption of the Zimbabwe dollar as sole legal tender is a sovereign decision by the government of Zimbabwe”.
Meanwhile, the RBZ governor told the committee that individuals are still allowed to withdraw up to US$1 000 a day from their foreign currency accounts (the individual FCAs) without restriction.
Following on the move to make the Zimbabwe dollar the sole trading currency, the RBZ last week came in with a raft of measures to strengthen the value of the local currency, including directing local financial institutions to transfer to the central bank the local currency that they are holding as counterpart funds for the foreign currency historical or legacy debt that Government, through the Reserve Bank, is assuming at the rate of 1:1 between the ZWL$ and the US$.
Dr Mangudya again reiterated that the said move is targeted to mop around $1,2 billion from the market as it seeks to control inflationary pressures.
He also said the move to put in place Letters of Credit (LCs) to the tune of US$330 secure importation of basic commodities would take away pressure from the interbank market.
Analyst Persistence Gwanyanya supported the latest Government move adding supporting Zimdollar strength and stability today requires a two-pronged approach including currency sterilisation.
“This involves sterilising the Zimdollar (mopping up Zimdollar liquidity), and improving the supply of forex in the interbank market. RBZ has already started the exercise when it instructed banks to transfer Zimdollar $1,2 billion to it in respect of legacy debts that it is assuming.
“This occurs at a time when usable balances are around zwl$1,2 billion, which will result in massive reduction of Zimdollar liquidity.
“Supported with a high interest rate regime occasioned by increase in bank rate from 15 percent to 50 percent, this adjustment will curtail speculative borrowings, which eases pressure on forex.
“And, those who borrowed to invest in forex will be forced to unwind their US$ positions but at a depreciating rate resulting in US$ sell-off,” he said.
This will increase forex flow in the interbank market making it more liquid and accessible noting that we currently have about US$1 billion sitting in FCA accounts.
As the market starts to see positive
adjustments, confidence is boosted, which suppresses the parallel market and stabilises the situation.