ABOUT $1 billion of idle or reserve money that was reportedly used to speculate on currency trading has been invested in savings bonds and will no longer be available on the market as it will go towards supporting agriculture this coming season.
The funds, which Reserve Bank of Zimbabwe governor Dr John Mangudya, described as “legitimate”, were held by companies and individuals including those whose accounts were frozen.
The accounts — which have since been unfrozen — belong to companies including Sakunda, Access Finance, Spartan Security, Croco Motors.
The funds were reportedly behind the massive depreciation of the Zimbabwe dollar over the period February to September after the country reintroduced local currency in February, still under multicurrency and when it adopted mono-currency in June this year.
In the intervening period, the exchange rate, following its liberalisation in February this year, has plummeted from 2,5 against the greenback to 15,5 yesterday.
There are several other corporate accounts that were also affected as the central bank moved to curb speculative demand of foreign currency. The frozen accounts held funds paid from Treasury bills maturities, Dr Mangudya said on Tuesday.
Monetary Policy Committee member Eddie Cross, told The Herald Finance & Business that the central bank had started moving the funds to banks to support agriculture.
“Certain Treasury bills had matured; we had paid out and this resulted in massive injection of liquidity into the market and the beneficiaries started buying foreign exchange on the market and it drove the (exchange) rates up,” said Mr Cross.
“What the Reserve Bank did was to freeze those accounts of the five companies and individuals . . . and the proceeds of the freezing have been converted into a savings bond with interest and these funds have been sterilised. They are no longer in the market.
“They can no longer be used for speculative purposes. We have been moving some of these funds into support for agriculture. What we are going to do now is to instruct the banks to invest the funds on behalf of the owners. Owners are not losing out anything.”
Mr Cross said the intervention by the central bank has helped stabilising the exchange rate and will boost agricultural production this coming season.
Dr Mangudya said a more stable exchange rate and prices was now realistic following the sterilisation of the funds.
“We have addressed the speculative tendencies that came with the increase in money supply; the reserve money. The money that increased due to increases in reserve money; we have sterilised it here at the bank. In other words, the money that caused the increase in the exchange rate and therefore inflation; we have sterilised it.
“That we have addressed, as the MPC, we deliberated on the matter extensively and came to the conclusion that we are satisfied with sterilisation of that money. Sterilisation is mopping of money from the market and putting it at the central bank to remove its effect of causing other havocs on the market,” said Dr Mangudya.
Two of the officials whose company accounts were closed, but cannot be named for professional reasons, separately confirmed the unfreezing of their accounts.