By Kuda Chideme
THE Reserve Bank of Zimbabwe (RBZ) has effectively brought back the local currency after denoting the existing electronic balances, bond notes and coins in circulation as real time gross settlement (RTGS) dollars, making them the official legal tender, as part of a host of monetary policy measures announced yesterday.
The bank has also removed the 1:1 peg on the local currency against the US dollar, practically de-dollarising, in a move which authorities hope will curb growth of the parallel market and ease foreign currency shortages which have crippled business.
In a widely anticipated move, RBZ governor John Mangudya said the legal instrument to give effect to the new legal tender was being prepared and that the central bank would establish an interbank platform, where currency would be traded freely from Monday February 25.
The 2019 budget, which was announced by Finance minister Mthuli Ncube last year, is also denominated in RTGS dollars, he added.
The country adopted mainly the US dollar after dumping its hyperinflation-ravaged currency in 2009, but has been struggling with a shortage of real dollars since 2016.
Previously, the central bank had maintained a fixed exchange rate, where RTGS balances, bond notes and coins were pegged at par with the United States dollar.
But this has largely resulted in intensified acute shortage of foreign exchange, price distortions and heightened inflationary pressures.
Mangudya, who had previously been opposed to the idea of allowing the currency to float freely, said the situation was no longer tenable and needed to be addressed immediately in order to restore the value of money.
“The bank considered the implications — accounting, financial, economic, legal and social — that are embedded in the establishment of an inter-bank forex market within the context of the current national payment systems made up of RTGS, mobile payment platforms, point-of-sale (POS), bond notes and coins.
“After taking into account the implications and putting in place safeguards to maintain stability in the forex market, the bank is, with immediate effect, establishing an inter-bank foreign exchange market in Zimbabwe to formalise the trading of RTGS balances and bond notes with US$ and other currencies on a willing-buyer, willing-seller basis through banks and bureaux de change,” he said.
“Bureaux de change shall be authorised to purchase foreign currency without limits, but shall be limited to sell foreign currency for small transactions such as subscriptions, business and personal travel up to a maximum aggregate daily limit of $10 000. Like with banks, bureaux de change and their agents shall report their activities of the inter-bank on a daily basis as required by the (central) bank.”
Mangudya said the central bank had arranged sufficient lines of credit to underpin the foreign exchange market, but he would not be drawn into disclosing the source of funding or the quantum.
Foreign currency from the interbank market shall be utilised for current bona fide foreign payment invoices except for school fees, he said.
“Foreign currency requirements for government expenditure and other essential commodities that include fuel, cooking oil, electricity, medicines and water chemicals shall continue to be made available through the existing letters of credit facilities and or the foreign exchange allocations committee.
“All foreign liabilities or legacy debts due to suppliers and service providers such as the International Air Transport Association (IATA), declared dividends, etc shall be treated separately after registering such transactions with exchange control for the purposes of providing the bank with sufficient information that will allow it to determine the roadmap for orderly expunging the legacy debt,” the RBZ chief said.
On exports, Mangudya announced that the export incentive scheme, which had been put in place to spur exports, would cease to exist after it was eroded by inflationary pressures.
Both large and small-scale gold producers will continue to retain 55% of their foreign currency earnings, while the rest will be paid in RTGS dollars.
The horticulture, manufacturing, transport and tourism sectors will retain 80% of their export earnings.
Tobacco and cotton merchants for input schemes will also retain 80%, while growers will be allocated 30%.
“Similarly, in order to enhance liquidity within the foreign currency market, exporters shall be entitled to utilise their retained export receipts within 30 days, after which the unutilised export receipts will be offloaded into the market at the prevailing exchange rate,” Mangudya added.
All international remittances and individual funds received from offshore shall continue to be treated as free funds.
In 2018, foreign receipts amounted to $6,3 billion, with export proceeds contributing 68% of the total amount received.
International remittances declined by 19% from $1,4 billion received in 2017 to $1,1 billion received in 2018. Of the $1,4 billion, Diaspora remittances contributed $619,2 million, a decline of 11,4% as compared to $699 million received in 2017.
According to the bank, the decline in Diaspora remittances is mainly attributed to the interception of remittances in South Africa by cross-border traders.
South Africa contributes about 34% of the total Diaspora remittances. Proceeds from loans accounted for 13% of the total foreign receipts.