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A new price control/exchange rate SI would be a huge mistake

SI, Reserve Bank of Zimbabwe

From what have seen over the last week or so it is likely that the authorities are at the very least thinking about a new Exchange Rate or Price Control Statutory Instrument (SI).

Last week the Reserve Bank of Zimbabwe (RBZ) named individuals who were involved in currency manipulation on social media. The central bank went as far as to publicly expose the ID numbers of those alleged (opening them up to identity fraud) not once but twice. In a repeat performance, the RBZ did the same earlier this week.

In the latest chapter to the Reserve Bank of Zimbabwe’s fight against the black market rate, the bank tweeted out that it is investigating an operator who is pegging USD to ZWL conversion at 1:200.

“The Financial Intelligence Unit is investigating allegations of currency manipulation and pegging of the ZW$ at 200 to 1 USD circulating on social media. Perpetrators shall be brought to book.”

Reserve Bank of Zimbabwe on Twitter

According to a report by ZimPriceCheck, the evidence that is circulating on social media is a receipt from Simbisa-owned Baker’s Inn

It should be mentioned that the authenticity of this receipt has not been confirmed. However, even if it is verified, Simbisa is a large company and very rarely are those punished in the same way that the RBZ did when it made public the names of those who were alleged to have been involved in currency manipulation.

What we could see though is blanket punishment by the arrival of another more specific price control or exchange rate SI. But that isn’t the way to go…

RBZ & Govt need to engage businesses

One thing that the authorities have failed time and time again to do is to get insights from businesses, both informal and formal, when they are drafting legislation.

I am sure we all remember what happened after SI 127 of 2021 was announced and the government should avoid a repeat performance. What I mean by this is that they should not confuse and further agitate the market by issuing a rule and then having to recant or adjust only after seeing pushback.

We saw this with what appeared to be a subtle tweak to SI 127 that made it only applicable to businesses or “outliers” trading on the RBZ Forex Auction. What the authorities should do instead is to open a line of communication with businesses and operators and get a first-hand account of what is affecting the spaces they operate in.

We can all agree that the forceful approach has been a monumental failure and in an environment as unconventional as Zimbabwe, the powers that be need to deviate totally from the standard playbook.

The black market is a symptom not the disease

Parallel markets exist as a response to something, they seldom ever appear by themselves. If the Reserve Bank of Zimbabwe intends on ending the black market then it should be prepared to listen and diagnose the route cause.

There is no way that the RBZ could possibly solve Zimbabwe’s economic strife on its own and it would be unfair to expect the central bank to because an economy is made up of an innumerable number of moving parts. There is no way to clamp down on it all without forcing those affected, both legitimate and otherwise, to find loopholes and workarounds to continue and even thrive.

The Statutory Instrument route has not achieved a desired outcome on the national level, so it would be in the best interests of the central bank to revamp its approach completely. Lest it continues to quash problem after problem and create new problems with the measures it, in isolation, thinks are the only remedy.

The first step to building trust

Engagement by the central bank would go some way to rebuilding the trust lost in the financial system over the last couple of decades. The status quo of snap legislation and new rules has fortified the “every man/woman for himself/herself” approach in Zimbabweans. This is one of the reasons why institutions like the National Mattress Bankers Association and parallel market rates exist.

Reversing this way of doing things is not going to happen overnight. The Reserve Bank and government need to abandon the “solve everything with an SI” knee-jerk reaction and start the hard work that will bring funds from the black market back into the system.

This isn’t going to be easy though, because they need to show a high level of commitment that they aren’t going to wake up and ban a currency. The road is going to be long but for the sake of stability and consistency, the RBZ and govt need to prove to the people they at the very least can begin by listening.

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