Despite yesterday conceding that he doesn’t want to wrestle with the reality ( the market forces) that bond notes (coins) are not at par with US dollars, Finance Minister Professor Mthuli Ncube, says he wants to maintain the pegged current rate of exchange of 1:1 in order to protect people’s savings.
At the moment, the parallel market is speaking a language of its own, with the rate of exchange between bond notes and USD dollars being- $1 USD/ Bond note $2.90 (thus 290%). Here is the full statement by Finance Minister about keeping the exchange rate pegged at 1:1
THE NEED FOR ECONOMIC AND CURRENCY REFORMS
Further to the various measures that Government is putting in to accelerate economic reforms that are necessary to right-sizing the economy, it is critical to restate Government’s great commitment to reducing fiscal imbalances which are the root cause of the many challenges the economy is facing.
The challenges include cash shortages and the proliferation of foreign exchange parallel market rates which have a negative effect on prices. These challenges require that Government position the economy on a strong footing by implementing reforms that include cutting on government expenditure, working towards import parity pricing system, increasing efficiency on government delivery systems and fast-tracking the State Owned Enterprises reforms, among a host of reforms.
These reforms shall be accompanied by a strong and sustainable currency reform system which will follow after the execution of the above reforms. This is necessary to ensure that any currency reform programme that the Government would put in place is effective and that it has minimum disruption to the business.
Accordingly and in view of the need for an orderly currency reform programme that will be followed when the economic fundamentals are right to do, the country shall continue to use the multi-currency system which was put in place by Government in 2009. This system entails that foreign exchange earners are not prejudiced of their regulatory foreign exchange receipts and that those who do not earn foreign exchange have access to foreign exchange through the banking system as is per the current policy of foreign exchange management system. In parallel, the Reserve Bank shall continue to maintain adequate resources for the import of essential commodities.
Over and above the Nostro Deposit Protection Guarantee from Afreximbank, we are also reinforcing Nostro foreign currency accounts with a statutory instrument to guarantee that these are private deposits, and neither the Reserve Bank nor government has any access to them.
Government recognise concerns surrounding RTGS deposits, and we commit to preserve the value of these balances on the current rate of exchange of 1 to 1, in order to protect people’s savings.
Hon. Prof. Mthuli Ncubc
Minister of Finance anti Economic Development
10 October 2018
This stance tells us that the government will keep a fixed exchange rate and not adopt a floating exchange rate between bond notes and USD dollar. As the Reserve Bank of Zimbabwe (RBZ) governor once put it, if they leave the market to determine the exchange rate it would be suicidal. And suicidal it will be because the market will just say that the bond note is rubbish. What value bond notes have now will dissipate in no time and people will be left holding nothing, just like the 2008 episode. I’m sure RBZ smells that fear in people that’s why it will continue to determine the exchange rate.
Remember, we have done an insightful report on the state of Zimbabwe’s payment system. You can purchase it below