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'Monetary Policy Statement will bring sanity' says RBZ Governor - will not and never will as long as insane rule the roost

by Nomusa Garikai
21 February 2019 | 1213 Views
The primary objective of the Reserve Bank of Zimbabwe's (RBZ) long awaited Monetary Policy Statement was to bring sanity to Zimbabwe's chaotic economic world, especially the madness in financial and currency market. As RBZ Governor, Dr John Mangudya, readily admitted when he launched the policy statement. "This is essential in order to bring sanity in the foreign currency market whilst at the same time promoting exports, diaspora remittances and investments for the good of our national economy," he said.

Sadly, instead of bringing sanity and stability he has only succeeded in mudding the muddy waters. After going through the statement it is clear that no one in RBZ and Ministry of Finance; headed by the flamboyant and blundering Professor Mthuli Ncube, who approved the statement; know what they are doing.

The statement confirms that insanity still rules supreme in Zimbabwe because nothing in the statement makes any sense. Nothing!

"Denominating the existing RTGS balances, bond notes and coins in circulation as RTGS dollars in order to establish an exchange rate between the current monetary balances and foreign currency. The RTGS dollars thus become part of the multi-currency system in Zimbabwe. The legal instrument to give effect to this has been prepared," said the statement.

It should be noted here that RTGS balances were, until now, denominated Bond Notes, the electronic equivalent of Bond Notes and coins. The value of the RTGS was less than the Bond Notes and Coins for various reasons including convenience and electronic transactions were subject to the new 2% tax introduced last October by Minister Ncube. Whilst the exchange rate to Bond Notes and coins was 3:1 to the USD the equivalent RTGS exchange rate was 4:1 or worse.

So in denominating all Bond Notes balances and cash to RTGS$ means  people have just lost out, instead of having Bond Note worth US$0.33 they now have RTGS$ worth US$0.25!  

"The RTGS dollars shall be used by all entities (including government) and individuals in Zimbabwe for the purposes of pricing of goods and services, record debts, accounting and settlement of domestic transactions," we are now told.

When Governor Mangudya was asked what is exchange rate for the RTGS$ against the USD; his reply was that the RBZ will not set a rate but would let the market decide.

It should be remembered here that until this statement government had recognised only the official exchange rate of 1:1 of Bond Note to USD.

So by acknowledging the unofficial exchange rate of 4:1 those with the economic muscle will impose the exchange rate that suits them. Employers, including government, will never adjust the workers' wages, agreed at on the basis of 1:1 exchange rate. Meanwhile all the goods and services will be charging in RTGS$ using the highest exchange rate possible!

Last time, October last year, when Finance Minister suggested government would let the Bond Note float this had caused serious financial turmoil as people rushed to sell their Bond Notes for the more stable USD; the exchange rate soared to as much as 10:1 and only started to come down when the Minister withdraw his foolish statement!

It is hardly six months since Minister Ncube's ill-advised exchange rate comment and yet government has once again put its foot into it! Government has just fired the starting gun of the rat race to buy USD with RTGS$. The value of the latter will fall.

If government tries to impose price control by insisting on a stable RTGS$ price whilst allowing the market to determine the later's value this will only result in shortages. Zimbabweans have been queuing for cash, fuel, bread, etc. the queues are only going to get longer and the list of commodities is short supply will increase.

"The Bank has arranged sufficient lines of credit to enable it to maintain adequate foreign currency to underpin the exchange market. This is essential to restore the purchasing power of RTGS balances through safeguarding price stability emanating from the pass-through effects of exchange rate movements," said Governor Mangudya.

Zimbabwe's chronic shortage of foreign currency is a child of the country's skewed balance of payment. We are importing far more than we can pay for through our export earnings. We need to revive the country production to reduce the volume of imports, we are now net importers of food a far cry from our breadbasket of the region days. Creating lines of credit, dictating what people should spend their hard earned incomes on, etc. are not going to end the country's foreign currency shortages and all the other economic problems.

It is laughable that Dr Mangudya should be admitting to the need to "bring sanity to the foreign currency market" when he knows that it was the RBZ and Ministry of Finance's ill-advised policies that brought the insanity in the first place. By the same token he and Minister Ncube know the recent statement will do nothing to end the chaos and insanity in the Zimbabwe economy.

The two gentlemen know the madness in the Zimbabwe economy will not end until something is done to end the rampant corruption and to restore investor confidence in Zimbabwe as a stable country and not a pariah state ruled by vote rigging thugs. There can be no economic recovery, much less prosperity, whilst the country remains a corrupt and lawless nation. There can never be sanity whilst the insane continue to rule!

Mthuli Ncube RBZ Monetary Policy Statement RTGS$

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