A bill that will clip the wings of the Reserve bank of Zimbabwe governor is before parliament but critics fear that the bill was personalised and might have to be amended to create a more independent central bank.
The United States embassy said the bill would improve confidence while central bank governor Gideon Gono remained on the scene but it was not a long term solution.
“By putting the RBZ under the control of the Ministry (of Finance), it leaves the door wide open for more politically directed monetary policy in future,” the embassy said.
The bill banned fiscal operations by the central bank and limited its capacity to finance government operations to 20 percent of the government’s revenue the previous year.
“Dollarization of Zimbabwe’s economy has already clipped Gono’s wings, but his continued presence in the RBZ’s top post, and his predilection for self-serving public statements, add to the public’s apprehension about what he might still have up his sleeve,” the embassy said.
“So if the bill goes through, the problem with Gono at the RBZ will have been ‘depersonalized’… But by tying the RBZ closely to the Minister of Finance, the bill does not advance the cause of institutional reform. Before long, Zimbabwe will need another central-bank reform bill, or continued political control of monetary policy will inevitably undermine confidence, deter investment, and slow economic recovery.”
Full cable:
Viewing cable 09HARARE709, ZIMBABWE CENTRAL BANK REFORM: ONE STEP FORWARD,
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|
Reference ID |
Created |
Released |
Classification |
Origin |
VZCZCXRO8691
PP RUEHBZ RUEHDU RUEHMR RUEHRN
DE RUEHSB #0709 2471018
ZNY CCCCC ZZH
P 041018Z SEP 09
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 4871
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHAR/AMEMBASSY ACCRA 3006
RUEHDS/AMEMBASSY ADDIS ABABA 3121
RUEHRL/AMEMBASSY BERLIN 1550
RUEHBY/AMEMBASSY CANBERRA 2384
RUEHDK/AMEMBASSY DAKAR 2751
RUEHKM/AMEMBASSY KAMPALA 3169
RUEHNR/AMEMBASSY NAIROBI 5614
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/EUCOM POLAD VAIHINGEN GE
RHEFDIA/DIA WASHDC
RUEHGV/USMISSION GENEVA 2297
RHEHAAA/NSC WASHDC
C O N F I D E N T I A L HARARE 000709
SIPDIS
AF/S FOR B. WALCH
DRL FOR N. WILETT
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS
STATE PASS TO USAID FOR J. HARMON AND L. DOBBINS
STATE PASS TO NSC FOR SENIOR AFRICA DIRECTOR MICHELLE GAVIN
E.O. 12958: DECL: 09/04/2019
SUBJECT: ZIMBABWE CENTRAL BANK REFORM: ONE STEP FORWARD,
TWO STEPS BACK
REF: HARARE 670
Classified By: Classified by: CDA Donald Petterson, Reason: 1.4 (b)
¶1. (C) SUMMARY: A bill now before Parliament seeks to reduce
the authority of the Governor of the Reserve Bank of Zimbabwe
(RBZ) and put the Ministry of Finance in charge of monetary
policy. If it becomes law, the bill would ban the
hyper-inflationary practices RBZ Governor Gideon Gono has
used since 2003 to support Government of Zimbabwe (GOZ)
policies. That should improve public confidence while Gono
remains on the scene, but the bill is not a long-term
solution. By putting the RBZ squarely under the control of
the Ministry, it leaves the door wide open for more
politically-directed monetary policy in the future. END
SUMMARY.
¶2. (U) The bill introduced to Parliament on August 14
strictly limits the RBZ’s capacity to finance GOZ operations.
It caps the outstanding total of RBZ loans to the GOZ at 20
percent of the GOZ’s revenue in the previous year. The law
also bans the RBZ’s quasi-fiscal operations, which Gono had
used to finance the GOZ on a grand scale, ultimately
triggering hyperinflation. Additionally, the RBZ would not
be allowed to borrow foreign currency or deal in precious
metals on its own behalf.
¶3. (U) If it becomes law, the bill would significantly reduce
the authority of the Governor and end presidential
prerogatives over RBZ policy. For example, GOZ instructions
to the Governor could only be transmitted via the Minister of
Finance, in writing. The Governor would no longer control
monetary policy, which would become the responsibility of a
committee. While the President would appoint most members of
the committee, the committee’s latitude on policy would be
constrained by the macroeconomic targets set out in the
national budget. Additionally, the Minister of Finance would
also have to authorize any interaction between the Governor
and international financial institutions.
¶4. (U) The bill leaves in place a provision in the RBZ
statute that gives the Minister of Finance responsibility for
exchange-rate policy. But it adds a requirement that the RBZ
must cover 100 percent of its liabilities to the public with
either gold or assets denominated in foreign currency. If
enacted, this feature of the bill would effectively exclude
the vague scheme Gono recently proposed, under which a
re-introduced Zimbabwe dollar would somehow be backed by the
country’s mineral reserves.
¶5. (C) COMMENT: Dollarization of Zimbabwe’s economy has
already clipped Gono’s wings, but his continued presence in
the RBZ’s top post, and his predilection for self-serving
public statements, add to the public’s apprehension about
what he might still have up his sleeve. So if the bill goes
through (an RBZ source says it is a done deal), the problem
with Gono at the RBZ will have been “depersonalized,” as
Finance Minister Biti has told us (reftel). But by tying the
QFinance Minister Biti has told us (reftel). But by tying the
RBZ closely to the Minister of Finance, the bill does not
advance the cause of institutional reform. Before long,
Zimbabwe will need another central-bank reform bill, or
continued political control of monetary policy will
inevitably undermine confidence, deter investment, and slow
economic recovery. END COMMENT.
PETTERSON
(15 VIEWS)
