Zimbabwe dollar to stabilise provided government resists temptation to print money ahead of elections

To put the need for boosting demand for the Zimdollar into context, a reflection of the monetary balance in the economy is important.

In the two trading sessions conducted so far since the implementation of the wholesale foreign auction system, RBZ sold about US$35 million through the Dutch auction system and wholesale foreign currency auction system, as well as the bureaux de change.

Out of this amount, US$15 million was sold in the first week ending June 10, 2023 and the balance the following week.

An estimated $190 billion has been mopped up from forex sales to banks and bureaux de change so far, which is a significant proportion of the usable balances of around $219 billion at the commencement of the trading sessions two weeks ago. The usable balances mainly comprise the excess reserves, which were mopped up by RBZ through the non-negotiable certificates of deposit. The excess reserves on the RTGs platform have remained very low, at around $0,1 billion, since 2022.

Interestingly, it seems there are very few banks that could afford to purchase US$1 million on the wholesale auction system from their positions, reflecting the tightening Zimdollar conditions in the market.

Assuming no monetary creation in the last two weeks, usable Zimdollar balances would have run down to $29 billion, after $190 billion was mopped up by forex sales to the market.

This translates to US$4,9 million at the current exchange rate of US$1:ZW$5 979.

However, for the sake of being conservative, we chose to maintain the usable balances at $200 billion to cater for bank credit creation, investment maturities, including Treasury Bills (TBs) and money market instruments that are not rolled over. At the current exchange rate, the assumed usable balances amount to only US$33,5 million. Imagine, this is the money that is giving us migraines. This only demonstrates that our major challenge is confidence.

The maturity profile of Government short-term debt instruments gives us a measure of comfort about the low risk from liquidity injection on account of these maturities.

Out of an amount of $101,6 billion expected to mature in the remainder of 2023, $80,1 billion is maturing in the current second quarter, which entails injection of Zimdollar liquidity in the market.

On the other hand, money and capital market investments by private players don’t seem to pose much risk to the growth in usable balances as they are concentrated in few, large well-established entities, most of which have low velocity of money.

Among these players are mining giants, which normally sit on huge Zimdollars from proceeds of foreign currency surrender. However, these players also have significant forex retentions, and, therefore, normally don’t participate in the parallel market.

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