A decision by central bank to separate foreign currency deposits from bond notes and electronic Real Time Gross Settlement (RTGS) has been widely blamed for the uncertainty that has hit the currency markets.
However, the MDC Alliance in fact had a similar proposal to ring-fence US dollar balances.
The MDC Alliance manifesto does not carry details of its ring-fencing policy, but in earlier pronouncements, the party’s economic policy supremo Tendai Biti laid it down elaborately.
“All bank balances existing right now must be closed and ring-fenced in USD terms, so that the government knows that we owe the people of Zimbabwe four billion or five billion dollars, and they will be able to monetise that money, return that money in the USD form that it was deposited, when the economy gets back to its feet,” Biti said in an October 25, 2017 ‘state of the economy address’.
It is debatable which of the ring-fencing proposals would be more palatable to depositors. Biti’s proposal would have depositors hold out hope that a government, which is already US$17 billion in debt, will eventually make good on an additional US$9.5 billion debt. The Mangudya policy, on the other hand, effectively shorted the unofficial local currency and eroded depositor value.
The Biti proposal is similar to the Confederation of Zimbabwe Industries (CZI) submission to government, which has the following three options:
- Convert all RTGS dollars into new local currency which is pegged at 1:1 with the US Dollar and there after float.
- Ring fence RTGS dollars and undertake to repay them as US dollars in the course of time and float a new local currency
- Ring fence RTGS dollars and undertake to repay them as US dollars in the course of time and adopt the rand as our new local currency with financial assistance from South Africa.
The Bankers Association of Zimbabwe (BAZ), in an advisory note to the central bank ahead of the October 1 policy statement, also proposed the separation of forex accounts from the unofficial local currency deposits.
Interestingly, while Mangudya’s policy only goes as far as separating hard currency deposits from the unofficial local currency, but maintaining the peg, Finance Minister Mthuli Ncube’s policy approximates Biti’s.
“The Transitional Stabilisation Programme also recognises the need to protect depositors who retained hard currency balances with the banking system against erosion of value arising from prevailing transactional premiums over RTGS balances,” reads the Ncube-inspired economic blueprint, which will anchor government economic policy until December 2020.
This, the blueprint says, will be undertaken through designating bank deposit balances as follows:
- Outstanding deposit balances prior to a specified date, will be deemed hard currency deposits.
- Non-hard currency deposits made after the specified date, will be recorded as ordinary RTGS deposit balances.
- All hard currency deposits undertaken by exporters, as well as individuals, will be recognised as such, that way encouraging hard currency inflows into the formal banking system
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