Gono’s wings clipped but RBZ bill criticised

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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C O N F I D E N T I A L HARARE 000709

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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

TAGS: ECON EFIN PGOV ZI

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

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