Tawanda Musarurwa Senior Business Reporter
Banks have commenced trading in foreign currency at a rate of 2,5 to the United States dollar following the decision by the Reserve Bank of Zimbabwe (RBZ) to float the currency on Wednesday. This rate, according to observers, is likely to bring stability on the market.
RBZ Governor Dr John Mangudya announced the introduction of an inter-bank foreign exchange market while delivering his Monetary Policy Statement.
Yesterday, the governor told business leaders that the central bank had met with banks and agreed to start at a rate of 2,5, which is lower than the prevailing rate of around 4 on the illegal market. This is in line with indications of a “managed float”, whereby banks will operate under some guidelines.
“We came to a conclusion with the bankers last night (Thursday) of 2,5, and we hope thereafter that the rate will continue to find itself,” said the RBZ Governor.
“We have also put a number of safeguards to ensure that the exchange rate is going to remain stable and we are quite happy with the austerity measures announced by the Ministry of Finance because there is no longer too much demand on the fiscus.”
University of Zimbabwe economics lecturer and former Government economic advisor Professor Ashok Chakravati said the concept of a managed float had been successfully implemented in other countries such as Nigeria and was optimistic it would work in Zimbabwe too.
“Such a managed market has been (successfully) introduced in West Africa (Nigeria), Angola and many other countries in Africa. So when we have such a managed market, then we will be able to control the exchange rate.”
Prior to the floating of the US dollar, the RBZ had pegged RTGS balances at 1:1 to the US dollar, however, shortages had resulted in high premiums for US dollars on the parallel market, which led to increases in prices.
The “managed float” is, therefore, expected to result in lowering of prices that had been pegged at over 1:4, with speculators cashing in on foreign currency shortages. The inter-bank market will work via banks and bureaux de change on a willing-buyer, willing-seller basis. According to the RBZ, the formalisation of foreign currency trading will entail denominating the existing RTGS balances, bond notes and coins in circulation as RTGS dollars to establish an exchange between current monetary balances and foreign currency.
The RBZ governor said the bulk of foreign currency will be allocated to the productive sectors of the economy.
“Seventy percent of the foreign currency will be utilised for productive sector’s imports and requirements, while the 30 percent will go to other things. You cannot have US$5 million going towards purchasing of a private jet at the expense of companies like Delta, Dairibord and the like,” he said.
“Companies need to boost production, because the floating of the US dollar alone will not enhance productivity.”
It is the hope of many industrialists and Zimbabweans in general that the managed free-float is going to bring sanity in foreign currency exchange.