Monday, 24 June 2019

WHY WE ABANDONED THE MULTI-CURRENCY SYSTEM : NCUBE


Government has removed the multi-currency regime and restricted domestic transactions to local currency, renamed Zimbabwe dollar, in an effort to enhance the affordability of goods and services by the majority.

Finance and Economic Development Minister Professor Mthuli Ncube yesterday told The Herald that Government had taken the decision abandon the multi-currency system after noting that the market was choosing to price a number of goods and services in US dollars when the majority of citizens earned the local unit.

He said apart from enabling everyone to transact, those with and without access to foreign currency, the new measures would give the Reserve Bank of Zimbabwe (RBZ) full monetary policy control to defend the value of the domestic currency.

Prof Ncube said key fundamentals to support a local currency, including controlled Government expenditure and budget surpluses, were now in place. 

“Basically, we have made another step forward by moving away from a multi-currency regime to a mono-currency regime where the domestic currency (Zimbabwe dollar) is now the sole legal tender for transactions within Zimbabwe,” said Prof Ncube.

“What was happening out there in the market was that the market was choosing a mono-currency, being the US dollar, and that is untenable because we do not control the sourcing of it (and) the supply of it.

“We cannot even conduct monetary policy on the back of it.”

The departure from the multi-currency regime dovetails with President Mnangagwa’s remarks in an interview with Bloomberg in Mozambique last week that it was necessary to have currency reforms in the country. 

Talk of a reverting to local currency has also been insistent over the past year as Government has taken pragmatic steps to finally move to a new local currency.

Essentially, the latest move is arguably a penultimate stop before the adoption of the fully monetised local unit.

Yesterday, Prof Ncube said using the Zimdollar would make it easier to transact on the domestic market with forex reserved for external payments.

“We also know that in some quarters we were not even allowed to transact in US dollars because of things like sanctions and other restrictions. So, it’s necessary to move on and use a currency that you can control.

“And also, what we are trying to do is restore full monetary policy where the Central Bank can conduct monetary policy using the array of tools that are necessary for managing monetary policy such as interest rates, use of a monetary policy committee to govern things like targeting money balances or even targeting inflation,” he said.

Prof Ncube said people will use the existing RTGS dollar, bond notes and bond coins, which means “nothing changes really”.

“What changes is the name of the currency  (to Zimbabwe dollar) plus the fact that it is now the only legal tender in Zimbabwe,” he said.

Prof Ncube said the use the Zimbabwe dollar is expected to result in an increase in US dollars flows into bureaux de change and banks as people convert their money to transact.

He added the new measures speak to discussions Government recently had with its workers.

“Basically, the multicurrency regime, which had by the way become a mono-currency in favour of the US dollar, was favouring those with access to US dollars; those with access to US dollars were facing no change in inflation at all for the last three years.

“So we were now creating a society of haves and have-nots; those who have access to US dollars and those who don’t. Those who don’t are faced with RTGS inflation while those who have US dollars are faced with zero inflation.”

Through Statutory Instrument (SI) 142 of 2019, known as Reserve Bank of Zimbabwe (Legal Tender) Regulations, Government abolished the use of multiple currencies such as British pound, United States dollar, South African rand, and Botswana pula, among others.

Zimbabwe had used a basket of currencies since 2009.  The Zimbabwe dollar became the sole legal tender with effect from yesterday. 

It will have same boundaries, extent in space, time, or meaning as the RTGS dollars, which entails all bond notes and approved forms of electronic money in Zimbabwe.

However, nothing changes regards operation of foreign currency (nostro) accounts, which will continue to be designated in the currency they are held. Herald

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