As we have pointed out elsewhere, according to the law, the RBZ’s 2019 monetary policy is long overdue. In its absence, a lot of rumours have been doing rounds with some suggesting the Monetary and Fiscal authorities are actually fighting and not seeing eye to eye. A report that both said authorities have strenuously denied.
Various sources have however confirmed that the RBZ governor John Mangudya is going to present his long-awaited Monetary Policy to the nation at 2:30 PM today. Most of Zimbabwe’s problems stem from the massive RTGS balances and Bond Notes/Coins which are all pegged at 1:1 against the US dollar despite the fact that the Zimbabwean government does not have reserves to support this exchange rate and the bond is not really a full-featured currency.
The Elephant in the room
Just like us a lot of people are hoping that the governor will address the elephant in the room-the currency crisis. Thus far both Mangudya and Ncube ( the minister of Finance) have all skirted around the issue because the Zimbabwean government would suffer the most under currency reforms choosing instead to burden the general populace.
According to a report by the respected international business publication, Bloomberg, the RBZ governor is going to finally poke the elephant in the room right in the eye.
Zimbabwe’s central bank is considering devaluing its quasi-currency as part of a raft of reforms to the nation’s foreign-exchange system, according to a central bank official…
The Reserve Bank of Zimbabwe may unveil the measures in its Monetary Policy Statement to be announced on Wednesday, said the official, who asked not to be identified because he’s not authorized to speak to the media. Governor John Mangudya was said to be unavailable when his office was contacted.
A half baked measure but it will do
The best thing would have been for the government to simply float their RTGS and Bond $ and allow the market to ascribe appropriate values to them. The Zimbabwean government however does not like ceding control and are likely to do the next thing, devalue the currency and take the final step in admitting that the USD and the bond are not equal.
It might be said that all roads have been leading to this devaluation. Ever since banks were ordered to separate vanity RTGS balances from actual Nostro backed balances we have all sort of known. Then the Minister of Finance confirmed it further by ordering duty for most items to be paid in USD. The president himself sealed the deal when he increased fuel tax.
The truth of the matter is that the 1:1 fiction has become more of a cost than it is worth. It means the government has to constantly prop up various industries while others are left at the mercy of the market forces creating distortions in the market. To make matters worse such subsidies rarely ever benefit the final consumer who still has to pay black market prices as politically connected actors take advantage of arbitrage opportunities.
The mortal blow to the 1:1 fairytale may be coming from the fact that inevitable local price increases have resulted in serious price increases which have made our exports exponentially expensive. This has compounded the forex shortages as it means Zimbabwean goods are now shunned due to their prices.
The devaluation measure is inadequate but sorely needed.
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28 comments
If you have 9Billion RTGS in the banking system without any cash equivalent to back it up and with USD in short supply floating might not help.The issue here is the RTGS balances need to be reduced to sustainable levels.The best way to do this is devalue the RTGS by introducing a new Zim currency.
If they devalue and we still using the USD we will still come back to the same scenario.It will take years for Zim to have USD surplus and the best way around this is to do away with the multicurrency.
still wont work since people in zimbabwe derive confidence from being able to buy as many us dollars as they need to on demand so with no trust the government cannot even if it tried maintain its value. i tell you if distortions are reduced and everyone gets us dollar at a specific rtae then within a week of getting burnt the rate ill drop to sustainable levels
The RTGS are more from government overspending and issuance of government bonds than anything else.If government does not overspend and print more money it does not matter what happens on the black market it will still maintain the rate at a resonable exchange level and thus contain any potential hyperinflation.
But what happens to the salaries and domestic wage bill
But what happens to the salaries and domestic wage bill
Of course,devaluation will actually solve nothing in the long run unless bond notes are removed. Economically we will never get a surplus of USD or even adequate supply of it to keep our economy going because we are not generating Forex,we are instead externalizing forex through imports,simply because the government cant think to resuscitate the production sector which is the source of our monetary problems.
Make the RTGS a cryptocurrency and back it with either platinum reserves or gold. Sell it on the international market.
loool
Agree with the cryptocurrency theory, back it up with all our mineral resources, anyone with a smartphone can use crypto anywhere in the world.
Float the rate let the market decide its premium especially before the tobacco floors open;.
If the Bond is still the most powerful currency in Africa today then doing absolutely nothing would be a good strategy.
You really have no idea how currency work do you. The bond is stronger than the Yuan, Yen, Rupee, Rand and yet all those economies are doing way better than ours. The exchange rate when taken in isolation is meaningless. In fact a good number of our economic problems stem from the fact that our currency is stronger than those in the region!
Yea true
A good move by the Central Bank
Until we have 100 % of reserves of forex in our banks the black market will determine the price in the shops. So RBZ can go ahead and devalue the bond, the black market will also devalue leaving us with less money in our pockets. The black market rules not RBZ do people with degrees in economics not understand that!!! I have 3 o levels that is it but at least I have basic common sense.that I was taught in school. All you hear is tobacco is booming wow but 80% or more land that was taken away sits idle, unproductive, the land has no value anymore…. please how can you expect any progress with unemployment over 90%….. thank you Lord for giving me parents and schooling that taught me something in life.
God why are us good people being punished like this???
If RBZ devalues the bond in ratio with the current forex reserve and does not print anymore bonds, the black market will be gradually eroded to a single free market.
If RBZ devalues the bond in ratio with the current forex reserve and does not print anymore bonds, the black market will be gradually eroded to a single free market.
This so called new dispensation must go!!!!
If government does not overspend and print more money it plans to do over the next foolish holidays ( Robert Mugabe youth day), the economy will correct itself
I think its better to use 1 currency which is acceptable internationally. Adopt rand or continue with US$. Ignore bond
US$ will never ever work . . .
Mate usd where will it come from??
Bond was there the deal with the fact that we had shortage of usd
Its good, but the business people need to be disciplined
Thats another elephant in the room
You should define “business people” here. Everyone is, from owners of large corporations to a vendor and money changer. How do you define discipline from the Zim economic perspective!
Sad that devaluation is only formalising what we already know, but will cause further loss of value on the only market, the black market. I call it the only market because it is the only market where one can get forex in Zim. The abitrage that the official system creaTed was to the benefit of the corrupt and the connected (not sure if there is s difference ). Apparent that they were getting forex at 1:1 when the rest of us were getting at 3,5 to 4. Their model of quantitative easing, seeing as they can only control vanity rtgs balances.
Sad that devaluation is only formalising what we already know, but will cause further loss of value on the only market, the black market. I call it the only market because it is the only market where one can get forex in Zim. The abitrage that the official system creaTed was to the benefit of the corrupt and the connected (not sure if there is s difference ). Apparent that they were getting forex at 1:1 when the rest of us were getting at 3,5 to 4. Their model of quantitative easing, seeing as they can only control vanity rtgs balances.