Zimbabwe's new currency: the 'RTGS dollar'
Harare — Zimbabwe’s quasi-currency, the bond note — which has been pegged at par with the United States dollar since its introduction in 2017 — is now subject to market forces after monetary authorities announced the establishment of an inter-bank foreign exchange market.
Presenting the country’s monetary policy, Zimbabwe’s central bank governor John Mangudya said the inter-bank forex market will bring sanity in the foreign currency market whilst at the same time promoting exports, diaspora remittances and investments for the good of the economy.
Mangudya said the move not to fix the rate of the local currency was taken after considering the accounting, financial, economic, legal and social implications of the move within the context of the current national payment systems made up of RTGS, mobile payment platforms, point of sale (POS), bond notes and coins.
He said the country was now denominating the existing RTGS balances, bond notes and coins in circulation as “RTGS dollars.”
“After taking account of the implications and putting in place safeguards to maintain stability in the fares market, the Bank is, with immediate effect, establishing an inter-bank foreign exchange market in Zimbabwe to formalise the trading of RTGS balances and bond notes with US dollars and other currencies on it willing-buyer willing-seller basis through banks and bureaus de change under the following framework,” he said.
Mangudya said this will eliminate the existence of the multi-pricing system, hence prices should remain at their current levels or to start to decline in sympathy with the stability in the exchange rate given that the current monetary balances have not been changed.
He said bureaux de change will be authorised to purchase foreign currency without limits but shall be limited to sell foreign currency for small transactions such as subscription, business and personal travel up to a maximum aggregate daily limit of US$10 000 per bureau de change.
Economist John Robertson said the interbank foreign currency market will stabilise the economy.
“It’s going to work better, floating is the right thing. They are avoiding the parallel market. This brings certainty and stability,” he said.
“Prices are likely to stabilise and some prices are going to come down as goods were now being sold at four times the rate.
The only question is, will Government get the rate at the same rate as others or it will stick with 1:1. If they stick with 1:1, it opens the way for corruption.”
Sifelani Jabangwe, the president of the Confederation of Zimbabwe Industries, said business had been agitating for the floating of the currency.
He said due to corporate governance issues, before the latest announcement businesses were not able to go to the black market where forex was found, hence some had closed while others were not operating at full capacity.
Jabangwe said the move will also help to bring investment into the country as investors were staying away not sure about the true value of their money that they would be bringing into the country.
“Businesses wanted to trade legally with something that is official not a rate that was set by someone under a tree or on the street,” he said.
Businessman and former Movement for Democratic Change (MDC) senator Eddie Cross said the move is likely to kill the forex black market. “Inflation is likely to go down,” he added.
However, former finance minister and senior MDC official Tendai Biti said the move will devalue people’s savings and is open to litigation.
“Further floating exchange rate & retention of the bond note will guarantee the continued existence of a key pillar of #corruption in this economy. ZANU #elites will continue raiding the RBZ for cheap foreign exchange which they will arbitrage .Real reform is ejecting #bond note,” Biti posted in a thread on Twitter.
4) Further floating exchange rate & retention of the bond note will guarantee the continued existence of a key pillar of #corruption in this economy.ZANU #elites will continue raiding the RBZ for cheap foreign exchange which they will arbitrage .Real reform is ejecting #bondnote
— TENDAI BITI (@BitiTendai) February 20, 2019
“#Liberalizing or #floating exchange without ring fencing RTGS balances will have the disastrous consequences of devaluing people s balances. #Floodgates of litigation will open.The RBZ will be held to account after maintaining & defending the #fiction of a bond, US $ parity.”
2)Liberalizing or floating exchange rate is dealing with symptoms. Bond note should simply be ejected . Besides bond note & it’s fictional parity is set as law in the RBZ Act so only Parliament can float or liberalize exchange rate .
— TENDAI BITI (@BitiTendai) February 20, 2019