Government is introducing measures to enforce discipline
and deal decisively with illicit financial activities that have prompted the
plunge of the local currency on the parallel market.
Cabinet last week, summoned RBZ Governor Dr John Mangudya
to explain the alarming loss of value of the local unit. The Reserve Bank of
Zimbabwe (RBZ) is expected to further assert itself in overseeing mobile money
transactions.
In the past week, the rate of the US dollar plummeted to as
low as US$1 to $70, leading to a spike in the price of basic goods as most
businesses peg costs on the parallel exchange rate.
The impact of the galloping exchange rate has brought
untold suffering for ordinary workers, most of whom pay for goods and services,
including rentals, that are indexed to the parallel market rate.
Authorities insist that the run on the local currency is
not a result of genuine economic fundamentals, but speculative tendencies, with
mobile money giant EcoCash fingered for slackening on its duties to regulate
illicit financial activities.
Information, Publicity and Broadcasting Services Minister
Monica Mutsvangwa said Cabinet vigorously recommended tougher action against
the black market.
“Cabinet received a report on the state of the economy and
expressed appreciation (for this report). There was robust debate for about
two-and-a-half hours, and all the challenges were looked at,” said Minister
Mutsvangwa.
“There was an appreciation of the state of the economy from
the report by the Minister of Finance and also by the Reserve Bank Governor who
was called into Cabinet to explain the issues.”
With a dominant market share of over 95 percent on the
mobile money market, EcoCash has been in the crosshairs of the RBZ as
investigations by the Financial Intelligence Unit (FIU) showed that its
transactions did not support huge money movement on this platform.
Finance and Economic Development Minister Professor Mthuli
Ncube said new measures, which will see the RBZ wielding more power on mobile
money operators, will be announced soon.
“What we have in Zimbabwe is a typical case where the
mobile platform is led by Telcos (telephone companies) and the banks follow. In
other countries the model is bank-led, central bank regulates,” Prof Ncube.
“The new measures that we are going to put in place will be
sustainable measures because these are about regulating financial services.
Whether the exchange rate is stable or not, our financial services need to be
regulated better.
“What you saw playing out is an issue around the
regulation, in this case the absence of exchange rate regulations was fuelling
the parallel market.”
Government already put regulations in place through
Statutory Instrument 80 of 2020, which, among other measures, state that “mobile
money providers are deemed to be financial institutions in terms of the Banking
Act”.
The mobile money providers are also required to “open and
maintain a bank account that is designated exclusively for mobile banking
services” and to “allow the Reserve Bank read-only real time access to its
payment system”.
Pertaining to the black market, Prof Ncube said although it
was common for the informal sector to emerge whenever any economy in the world
is undertaking reforms, the activities in Zimbabwe had become too widespread.
“The idea is always to close this gap. There is always a
tolerable spread, for example, if the spread was small it wouldn’t mean much.
“The wider the spread, the more problematic it is for
policymakers. The black market is a typical feature of economic reform, but our
challenge is to make sure it is put under control and it stops causing so much
pressure on the parallel front, which it is doing, leading to unjustifiable
price hikes.”
He said informalisation of the economy was a contributory
factor to the spiralling black market.
“If an economy is this informalised, 60 percent
informalisation, whenever you enact monetary policy at times it becomes a blunt
instrument.
“When you raise interest rates, you expect that to come
down and lower consumption, because price of money is now high and people
borrow less. When an economy is informalised it doesn’t quite work that way.”
Prof Ncube said Government had not enforced price controls,
but the moratorium with businesses had been done in good faith. He said there is further need to re-engage business in a
“firmer” way to address price hikes.
“First of all this moratorium was a product of a handshake,
moral persuasion. It was not price controls, because if it was, what is
happening now (price increases) would not have happened.
“We still want to reach out to industries and shake hands
again, perhaps a bit firmer.
“What has been happening is that there has been an
immediate reaction to the parallel rate. We still need to have continuous
dialogue with industry so that we can have this price moratorium.”
Repeated efforts to contact RBZ Governor Dr John Mangudya
were fruitless. Members of the public have shown little confidence in the
local currency, as they are haunted by the economic implosion of 2008, when the
country’s currency became worthless.
Last week, the RBZ issued a new directive that limits
transactions on the ZIPIT platform to $20 000 a day and $100 000 monthly.
The FIU noted that shortcomings in the ZIPIT system made it
difficult for banks, regulators and law enforcement agencies to speedily
identify counter-parties to a transaction or to identify multi-banked users.
Following the new directive, the local currency gained
slightly on the parallel market rate and was trading at between US$1:$50 and 60
as of yesterday.
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