Wednesday, 11 March 2020

NEW FOREX MEASURES TO EASE VOLATILITY : MTHULI


Foreign exchange will be traded freely among banks as Zimbabwe’s financial authorities upgrade official forex trading by bringing in an electronic trading platform, allowing a managed float of the Zimbabwe dollar, introducing measures to mop up excess corporate liquidity, spreading Government disbursements evenly to prevent bulges in money supply and curbing black market trading.

Announcing the new raft of measures yesterday as part of Government efforts to stabilise foreign exchange trading, exchange rates and inflation, Finance and Economic Development Minister Prof Mthuli Ncube said a broad-based taskforce will oversee the package of new policy measures designed to open markets in a phased manner.

He told bankers and journalists that the taskforce will be spearheaded by his ministry and the Reserve Bank of Zimbabwe (RBZ) and will include members of the Monetary Policy Committee (MPC) and the Presidential Advisory Council (PAC).

The planned policy interventions were part of the de-dollarisation roadmap and come as a result of a recent surge in the black market exchange rates driven by a bulge in Zimbabwe-dollar holdings by a small group of corporates and an official foreign exchange trading platform that needed to be more transparent and effective. 

The high liquidity by the small number of corporates, with 200 holding about half of Zimbabwe’s total money supply according to the latest RBZ report, was interacting with a limited pool of free funds largely fed by Diaspora transfers, pushing up black market rates.

The programme is designed to prevent the bulges in holdings, mop up some of the corporate liquidity and ensure the official market is more responsive and open.

RBZ Governor Dr John Mangudya, said the measures to stabilise the exchange rate were critical given its pass through effect on inflation.

Minister Ncube said Government was cognisant of the fact that unrestrained money supply was one of the fundamental causes of inflation and depreciation of the exchange rate, as happened prior 2009.
  
“In order to stabilise the exchange rate and hence to lower inflation, the Government has decided to implement a holistic package of key policy measures. In this regard, currency taskforce has been set up,” Minister Ncube said.

He said Zimbabwe will introduce a managed floating exchange rate trading system and an electronic forex trading platform, which will allow foreign exchange to be traded freely among banks to determine a true market exchange rate.

The minister said the country had no transparent and effective foreign exchange trading platform, which resulted in official rates not being effectively determined, giving rise to a thriving black market.

The official exchange rate stood at $18,5 to the US dollar.

Bureaux de Change will also participate on the electronic platform. The minister said the Bureaux de Change rules were being liberalised so that they can conduct a wide range of transactions including financing importers.

On its part, the RBZ will provide liquidity to stabilise the exchange rate where necessary, which will be accessed at the market determined interbank exchange rate. 

The interbank market has been using the mid-rate to determine the daily exchange rate since September last year to avoid free-fall of the domestic currency.

Treasury will maintain cash budgeting, thus severely limiting growth in local currency money supply, as part of the measures to stabilise the rate and inflation. It will also smooth expenditure disbursements so that large payments do not disrupt the forex market. Treasury Bills will be pre-planned to cover the whole year with approval by the Monetary Policy Committee.

It is now accepted by many in the markets that some of the surges in black market rates are driven by those who have received a large payment and want to lock it into foreign exchange.

The RBZ will mop up excess liquidity held by corporates and other large holders of Zimbabwe dollars in the banking system by introducing short-term corporate bills.

Minister Ncube said to ensure success of the policy measures, Government was implementing certain regulatory changes that will be effected as a matter of urgency.

“Our laws and enforcement regime are not as effective as they should be when it comes to crimes relating to foreign exchange and financial fraud. The current legal and institutional framework relating to curbing of trading on the parallel market is quite inadequate.

“Government will be reviewing all the laws and institutional framework in order to bring them in line with international best practices and more importantly monitor the effectiveness of institutions charged with implementing the laws,” he said. Herald

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