Reserve Bank of Zimbabwe sleeping on the job- rate would fall to 4:1 if it did its job


Zimbabwe does not have an interbank market because the Reserve Bank of Zimbabwe continues to meddle otherwise if the interbank market were operating transparently the exchange rate of the Zimbabwe dollar to the United States would drop to 4 to 1.

Currently the Zimbabwe dollar is trading at about 9 to 1.

Economist Eddie Cross said Zimbabwe was on the right track policy-wise.

“Our macro-economic fundamentals are fine, we have a fiscal surplus and are holding down government expenditure and we now have a foreign exchange surplus,” he wrote on his personal blog but the problem was that the central bank was not allowing the interbank market to operate transparently.

“There should be no crisis, our foreign exchange earnings come from three main sources – exports of goods and services, income from tourism and what we call ‘invisibles’ or net transfers and remittances from the Diaspora,” he says.

“Exports last year were US$4.3 billion, the other income about US$1.6 and the Diaspora – who knows? What I know is that we have 5 million or more adult Zimbabweans living and working outside the country; 3 million in South Africa, the rest overseas.

“Money transfer agencies have millions of Zimbabwean clients none report transfers on average below US$50 per month. 50 x 5 million is US$3 billion per annum.

“Mukuyu reports average transfers in 2018 of US$78 per transfer. In my view Diaspora remittances are not less than US$3 billion. Look around you – queues of people collecting money, house building worth billions every year – 3 million tonnes of cement, school fees, groceries and chema payments. If this is the case, we have about US$9 billion in forex available to meet our needs for imports and other things. Our imports have declined nearly 25 per cent because of low domestic demand at crazy prices.

“These inflows of foreign currency are being managed by three institutional sectors – the Banks, the Reserve Bank and the open market money traders. In each sector they are motivated, not by determining the real market price on a willing seller/buyer basis, but by getting the highest return for the dollar – the banks are chasing their tails driven by their clients and the money changers make money on every turn and their clients want top dollar. So the exchange rate runs.

“The major impact of the de-dollarization and SI 142 was to bring the foreign exchange in the informal market more into the banks and this is what has reduced the exchange rate in the past 10 days from 15 to 1 to 8 to 12 to 1.

“But the Reserve Bank remains at the centre of this brewing storm in its inexplicable reluctance to implement stated policy. Over the past two weeks they are supposed to have put half their retentions from exports onto the Interbank Market for trading purposes. That is nearly US$1.5 billion a year or US$6 million a day – a considerable sum. Banks report no such activity.

“I can understand why, because we continue to see the Reserve Bank doing crazy things – they are issuing letters of credit to support purchases of fuel and electricity and raw materials for the food industry – all good you say. But if we are selling fuel at half the landed cost of the stuff, maize at 30 per cent of its real value, wheat at the same rate and electricity at 2 US cents a KwH – we are going broke rapidly. When we give Government US$21 million to buy luxury cars from Croco Motors at 1 to 1, we have bought that foreign exchange at 8 or 9 to one – the entire loss of Z$150 million goes into the RBZ overdraft – the most inflationary form of borrowing that is available.

“Despite denials, I see new bond notes in the market – still smelling of printer’s ink. What ae they doing with that? They are buying gold and then using the gold to settle the Banks external liabilities. It is months since we saw any significant statistics on anything from the Bank. What are they hiding? The truth is the RBZ is totally out of control.

“Why is this important? What has it got to do with the perfect storm? Everything. If we had an Interbank Market – say a daily gathering of traders of foreign exchange in the basement of the RBZ Building in Harare. If all foreign exchange from all sources was placed on that table every morning at, say, 10.00hrs. If all Banks came to the market with their client’s needs, a price would emerge from that table which would reflect real supply and demand. If I am right about the supply and demand of hard currency in Zimbabwe, the rate would come down immediately – my colleagues on the Economists Round Table, a local think tank, agree; it would fall below 4 to 1. We need to maintain a relatively weak local currency and if that happened we would recommend the Reserve Bank buys foreign exchange to keep the rate at, say, 4 to 1. “

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Charles Rukuni
The Insider is a political and business bulletin about Zimbabwe, edited by Charles Rukuni. Founded in 1990, it was a printed 12-page subscription only newsletter until 2003 when Zimbabwe's hyper-inflation made it impossible to continue printing.


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