Liberalise foreign exchange: FBC Securities

FBC Securities says government should liberalise foreign exchange and the development could see elimination of the black market within two months.


Kipson Gundani
Government has maintained that bond notes, which were introduced in 2016 to plug banknote shortages hold the same value as the United States dollar.

In reality, the value of bond notes has plunged, giving rise to a thriving parallel market for the greenback, which is centrally controlled by the Reserve Bank of Zimbabwe (RBZ).

In a weekly economic report, FBC Securities noted that post-liberalisation, the USD would naturally emerge as the preferred medium of exchange, driving out the bond note.

“Borrowing from economic theory and the 2012-2015 Zimbabwean monetary situation, liberalisation of the foreign exchange market will eliminate the black market in a space of not more than two months.

With the current continuous suspensions of statutory instruments (SIs) in international trade by the government, there is going to be increased supply of commodities in all markets,” FBC Securities said.

Economist Kipson Gundani also called for the government to provide business with a legal framework of obtaining foreign currency.

“We call upon the government to do away with the 1:1 fixed exchange rate and pursue a managed floating exchange rate.

“This move will provide the market with a legal way of obtaining forex through formal banking channels whilst also decriminalising forex trading. Zimbabwe needs this. Do away with the forex allocation system and thus allow the market to allocate forex. Declare the RTGS balances a local currency and monetise it. Take out bond notes from the market and contain money supply growth,” Gundani said.

Financial expert Persistence Gwanyanya weighed in and supported the floating of the currency, but warned against excessive money supply.

“When you float, you just need to manage inflation. In this case, the duty of the central bank will be to manage inflation. Simply put, an exchange rate is managing the demand and supply of currency. But it’s a challenge for Zimbabwe to float. We have been undisciplined in terms of money supply and that is the challenge, we have as a country. Unlike Malawi, South Africa and Zambia, these countries have managed their exchange rates well through free floating,” said Gwanyanya.

He added that the option of putting a peg on the exchange rate needs to be anchored by enough reserves.

“The next option is putting a peg. We can peg along using the alternative market rate. For a start, I suggest the 1:3 exchange rate. But we need reserves to support a managed peg. But those would need reserves to defend the exchange rate when it’s under attack from excessive money supply. We are exporting our gold, we don’t have enough for reserves. And also because we are dollarised, it is not feasible to have foreign currency reserves,” he said.


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