Following the recent sharp increase of cash burning rate, the Reserve Bank of Zimbabwe (RBZ) has decided to increase foreign currency (forex) in the economy by a further $50 million to tame this rate. Cash Burning is essentially a form of selling hard cash US dollars (USD) on the black market to those who are desperate enough to pay a premium for it with electronic funds transfers or physical bond notes.
As of today, the cash burning rate is 2:1 or 100%, meaning that in order to get USD $100, one has to transfer $200 from their bank account or mobile money wallet. An acute shortage of forex (cash) has fuelled the price of buying it, be it with electronic funds transfer or bond notes cash. Accordingly, cash burning has driven up the cost of production for companies who are relying on the black market to source forex.
The additional USD $50 million will take the total forex in circulation in the economy to USD $150 million. Speaking to Newsday, RBZ Governor, John Mandudya said;
The Reserve Bank has injected more cash into the banking sector, therefore, those people who are selling cash at 100% would soon count their losses…..This week alone (last week) we have injected USD $20 million and next week (this week) we are putting USD $30 million, so this month we are saying we have increased it from USD $100 million to USD $150 million, therefore there is no logic for prices to go up when there is more money in the economy
Whilst forex shortage is disproportionately amplifying this cash burning rate, speculation which is being spurred by the impending elections has its fair share of influence. In light of this, I don’t expect that this $50 million injection will significantly push the cash burning rate down in the short term ( 2 weeks at least). RBZ is forced to be patient for the next couple of weeks on that score.
Furthermore, RBZ will have to hope that banks will, in turn, release the USDs to its customers.
Only two weeks ago,the governor declared that he was immediately stopping disbursing USDs to banks for individuals to withdraw since they (people who withdraw the USDs from the bank) eventually sell the USD’s in the black market, thus cash burning.
Of course, everyone would want to know why, less than 3 weeks after withholding the USDs, has RBZ suddenly decided, not only to retract its action but even go as far as to increase the forex allocation in the economy.
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