Cross urges Reserve Bank of Zimbabwe to stop fighting Mthuli Ncube

Former Movement for Democratic Change policy advisor Eddie Cross has blamed the Reserve Bank of Zimbabwe for sabotaging the country’s economic recovery and has called on the central bank to stop fighting Finance Minister Mthuli Ncube.

He said the central bank was fighting to control foreign currency allocations instead of allowing the “willing buyer willing seller” system to work and was therefore creating a parallel market system for favoured political heavy weights who could make a profit of more than 50 percent by buying foreign currency at the official inter-bank rate and selling it at the parallel market rate.

Cross said the battle between Central bank governor John Mangudya and Ncube started when the Finance Minister insisted that the government should set up a monetary policy committee which should be independent of both the central bank and the ministry.

The committee has not been established to date.

The rift widened when the Finance Minister insisted that the local surrogate currency must be allowed to trade freely on the market with the United States dollar.

Cross says Mangudya resisted the move until President Emmerson Mnangagwa stepped in.

“What the Minister of Finance has done over the past 9 months is to announce that the RTGS and the Bond Note are both currencies. He has stopped printing money and now has both a fiscal and a hard currency surplus over current demands,” Cross wrote on his personal blog.

“He has drawn a distinction between the RTGS and the US dollar and forced the rate at which the Reserve Bank buys hard currency from exporters to start at 2.5:1 and now 3.2:1. But it has been like drawing teeth at the RBZ – each step has been painful and drawn out. They know they cannot openly disregard the instructions of the Ministry, but they are making sure that they hold onto as much power and influence as they can.

“The result is that the majority of all foreign currency transactions are conducted, not in the official interbank market, but on street corners and in coffee shops. I told one industrialist how to secure hard currency and he did not believe me – but he went to a coffee shop in Avondale and was offered US$10 million at the exchange rate of the day (4.6:1).

“He was stunned. But the reality of this situation is that when the Reserve Bank instructs banks to trade only at the levels dictated by the Bank (illegally following the Monetary Policy) the rate is held back from real market levels. At 3:1 the informal market trading at 4.5:1 represents a 50 per cent premium for exporters – who can forgo that and survive?

“So the real market follows – not the interbank rates now posted in newspapers and on bank walls as the market rate, but the informal market rates. And it is this rate that sets market priced for consumers because the majority of imports are conducted at these rates.

“In this way the RBZ actually is responsible for much of the inflation in the market at present and is therefore responsible for retarding economic recovery and stability even though the economic fundamentals are now stable and sound.

“This week, for the first time the informal market rate has strengthened to 4.62 to 1 as against 4.8 to 1. We have been expecting this to happen because we currently have a surplus of hard currency. This and the fact that the fundamentals are sound means that we should see that inflation falls by year end and exchange rates strengthen to perhaps 3 to 1. This will only happen if the Reserve Bank stops fighting the Ministry of Finance and they work together on getting Zimbabwe back on the road to growth.”

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