Zimbabwe introduces inter-bank forex market

Fanuel Jongwe - Zimbabwe's central bank on Wednesday said it was introducing a new interbank foreign exchange system, effectively devaluing its quasi-currency which had been officially pegged at par with the US dollar.

"We have provided a formal way of trading in foreign currency," Reserve Bank of Zimbabwe governor John Mangudya said as he announced new monetary policy measures aimed at addressing a perennial foreign currency crunch.

"We have basically formalised what is happening. We have basically ensured that no one goes to buy currency from the parallel market.

"The inter-bank exchange system will have significant positive effects on the economy's external and fiscal sectors, domestic production and on the welfare of citizens," he said.

The local bond - introduced two years ago to address a cash shortage - will be a tradable domestic currency alongside the greenback, South African rand and a host of other foreign currencies adopted in 2009 after hyperinflation rendered the local Zimbabwe dollar unusable.

RTGS

The new policy in essence devalues the local bond note - the quasi-currency which exists in note and electronic form known as RTGS (real time gross settlement) - introduced in 2016 by ousted leader Robert Mugabe to address cash shortages.

It had been pegged at 1:1 against the US dollar while the parallel market rate was much higher.

The central bank said formalising trading of "RTGS balances and bond notes with the US dollar and other currencies" on a "willing-buyer willing-seller basis through banks and bureau de change" would bring stability to the market.

Mangudya expressed hope that the new measures will help encourage RTGS electronic payments for domestic transaction and get rid of multi-tier pricing system which has seen goods and services priced in US dollars, bond note or RTGS.

‘Phantom money’

However Derek Matyszak, a researcher with the Pretoria-based Institute for Security Studies, says that RTGS is "phantom money".

"It is printing of money electronically," he told a recent seminar in Johannesburg. “It doesn't exist".

Former economic planning minister and opposition politician, Tapiwa Mashakada, said that authorities' pushing of the RTGS is a "clever" way of re-introducing a domestic currency.

"This is a Zimbabwe dollar by any means. Zimbabwe now has a sovereign currency called 'RTGS dollar' which is a euphemism for Zimbabwe dollars. It's like saying you eat bacon but not pork," said Mashakada.

"The domestic currency has bounced back without addressing the key fundamentals," he said.

Economy

Zimbabwe's economy has been on a downturn for more than a decade with high inflation and cash shortages which forced banks to put a ceiling on withdrawals as depositors spent long hours queueing to withdraw cash.

President Emmerson Mnangagwa, who took over from long-time ruler Mugabe following a brief military takeover in 2017, has vowed to revive the country's moribund economy.

In October finance minister Mthuli Ncube introduced a 2% tax on all electronic transactions, triggering price hikes and shortages of fuel and basic commodities like bread and cooking oil.

In January, Mnangagwa announced a more than 100% hike in the prices of fuel.

The move sparked countrywide protests which left at least 17 people dead after soldiers were deployed to crush the protests.

Independent economist John Robertson said the new monetary policy was "a good move".

"The government has decided to let the market decide the exchange rate," Robertson told AFP.

"It's possible the exchange rate will stabilise. There has been little certainty. This is a good start but there are many more things to be done." – Nampa/AFP