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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