The Zimbabwe dollar is once again reeling under unrelenting
pressure from speculative activities by crafty individuals seeking personal
gain, it has been learnt.
The Reserve Bank of Zimbabwe (RBZ) — through Statutory
Instrument 103A of 2020 — introduced new higher denomination notes such as the
$10 note released on Tuesday last week and the $20 note that will be released to
the market on Monday next week.
The new measures are meant to ease cash shortages plaguing
the local market. In releasing the cash, after a clamp down on errant EcoCash
agents, the RBZ Governor Dr John Mangudya said monetary authorities were trying
to increase the amount of paper money as it is still below 5 percent of the
total amount in circulation.
International best practice, however, dictates that paper
money should be at least 15 percent of the money in circulation.
Before introduction of the new notes, the local currency
was trading at relatively stable rates on the parallel market, especially for
electronic transfers.
Ordinarily, the local currency would have been expected to
firm due to the clamp down on illegal activities on electronic platforms.
A firming local unit would have been a boon for both
tobacco and cotton farmers seeking a convenient payment method — cash.
However, it is believed that some dealers are using the
special dispensation for withdrawals specifically meant for tobacco farmers,
some of whom desperately need cash to pay their workers, as a conduit to make
large cash withdrawals, which they in turn channel to the black market.
As such, the sustained depreciation of the local currency
topped the agenda when the Monetary Policy Committee — an advisory arm of the
central bank — met on Friday.
Dr John Mangudya told The Sunday Mail Business that current
market fundamentals do not justify such a sustained and marked loss in value
since the country is receiving significant inflows of foreign currency from
gold and tobacco.
Prospects in the tobacco sector have been particularly
bullish. By last week, more than 12,6 million kilogrammes worth US$28 million
had been sold, compared to 2 million kilogrammes worth US$3,5 million in the
same period a year ago. Gold prices have also been rising on the international
market. Dr Mangudya insists there currently is no evidence that cash was
leaking directly from banks to the parallel market.
It was plausible, he added, that depositors could have been
on-selling their cash after making withdrawals.
Zimbabwe needs at least US$100 million monthly for
essential requirements, including fuel and drugs among others.
The Confederation of Zimbabwe Industries (CZI) believes
that the rate management system is causing exchange rate volatility.
The business lobby group opines that a two-tier exchange
rate regime might help stem the tide.
CZI proposed a crawling peg, a variable rate system
adjustable by the previous month’s inflation rate, and a truly floating rate
based on an independent Reuters System.
It added that any efficient exchange rate regime needed to
be complemented by an iron-clad grip on money supply.
With most of Zimbabwe’s productive sectors such as
agriculture and manufacturing operating at critically low and constrained
levels, dependency on imports has created pressure and speculative demand for
foreign currency, especially US dollars.
The RBZ said the depreciation of the local currency
couldn’t be linked to the rise in demand for US dollars as the current national
lockdown, which restricts movements and to an extent business activity, would
naturally result in subdued demand.
It was clear, Dr Mangudya said, that the exchange rate was
being manipulated by cunning and selfish individuals.
“The exchange rate has moved from $44, $45 and $60 to the
US dollar. We need to ensure that we put the blame where it belongs. It is
because people are manipulating the currency for selfish reasons,” said the RBZ
Governor.
“These are ‘geniuses’ at currency manipulation and when we
say there is a demon causing problems, we do not mean real demons, we mean the
force behind these challenges cannot be touched, but it is there.
“They just wake up and say the exchange rate is $70 today,
but who buys at that rate: probably no one, but they just want to push the rate
up.
“We have big companies that are mere followers of this and
so everyone becomes a follower, that is why I said there is need for contact
tracing to see who is causing it; that is, treating it like Covid-19 — trace,
isolate and then treat,” he said.
The apex bank has previously attributed suspicious rate
movements to illegal foreign currency activities, following local currency
withdrawals running into several millions of Zimbabwe dollars.
However, once the excessive liquidity flow into the market
was halted, the exchange rate regained relative stability for a brief period
before cycles of intermittent free fall began again.
Dr Mangudya said “what we are seeing on the streets are
just symptoms of a challenge”.
Government faces the twin headache of ruthlessly dealing
with illegal forex traders, who ply their trade on the streets in broad
daylight, or crippling firms who fail to get hard currency on the formal
interbank.
The central bank believes Zimbabwe needs to focus more on
production to cut on imports, save forex and reduce the impact of exchange rate
movement on domestic pricing.
The Zimbabwe dollar was reintroduced after a decade-long
hiatus following its collapse amid hyperinflationary in early 2009.
Having started at a floated rate of $2,5 to US$1, it has
exponentially lost ground until it was fixed at $25 to US$1 in March for
certainty of pricing following challenges brought about by the Covid-19
outbreak.
Its depreciation has often resulted in spiralling prices of
basic commodities. Annual inflation was measured at 676 percent by April 2020.
Consequently, the depreciation has spawned need for higher
cash denominations to complement $2 and $5 notes.
The central bank has injected just over $1 billion into
circulation since September last year in its bid to address cash shortages,
which are causing thriving trade in cash, with premiums as high as 30 percent.
The bank targets to increase the total amount of paper
money in circulation to 10 percent of total money supply. The cash is being
drip fed into the market, with banks swapping RTGS balances for notes.
This is being done to avoid creation of new money that
would fuel money supply growth, drive inflation and exchange volatility. Sunday
Mail
0 comments:
Post a Comment