The Sunday Mail
Christopher Mugaga
May 5, 2016 saw the banking tsar in Zimbabwe introduce a raft of measures to ease the prevailing cash crisis, which can technically be interpreted as the announcement of a mini-monetary policy statement.
Zimbabwe lost its domestic currency on February 9, 2009 and since then, the multi-currency regime has been obtaining. Almost seven years down the line, the heat is at our doorsteps as unsustainable current and capital account deficits exert pressure on the Nostro Accounts of banking institutions.
Highlights of the policy move
1. The public will only be able to withdraw a maximum of US$1 000, Euro1 000 and R20 000 per day from their accounts.
2. 40 percent of all new US dollar receipts will be converted to rand.
3. Bond notes will be introduced “in over two months’ time”.
4. Finance Minister Patrick Chinamasa had hinted earlier that the circulation of the rand in Zimbabwe was declining, coming to zero in 2015.
5. Bond notes will be backed by the same US$200 million Africa Export Import Bank facility used for the bond coins already in circulation.
6. Capital remittances from disposal of local property, funding of offshore credit cards and payments for non-commercial vehicles have been categorised as non-priority payments.
Potential positives
a. It can improve the cash position in the economy given the unsustainable nature of over-reliance on the US dollar.
b. It can help facilitate or expedite importation of critical requirements from South Africa and other countries on the Sadc Integrated Regional Electronic Settlement System (Siress) platform that include Namibia, Lesotho and Swaziland.
The rand will be the anchor currency on that platform.
c. It could also be an indirect route to internal devaluation given that most products denominated in the US dollar are overpriced. A 40 percent rand component might erode the competitive advantage South African goods have on the domestic market on account of the volatility and general weakening of their currency.
With the imminent downgrade by Moody and political developments in South Africa, the rand will continue feeling the pressure in the foreseeable future.
Potential Negatives
a. Bank runs – where depositors will rush to banks to withdraw their savings. The 40 percent conversion of US dollar receipts into rands can be so unsettling, even deepening financial exclusion where more than 80 percent of the population does not have a bank account.
b. Capital remittances from cross-border investments have been given the lowest priority. Foreign investors on our stock market are effectively trapped in Zimbabwe. This also means new investors won’t come in any time soon.
c. Potential dwindling of assurance and investment products (life insurance) – remember we were assuring policy-holders and investors that the Zimbabwe dollar would only return when the economy was kicking.
Now 12 months into that assurance, these stakeholders are staring at a different prospect.
d. Savings levels in the economy may also decline significantly as people opt for spending instead of bond note or US dollar receipts subject to 40 percent “randisation”.
e. What could happen to Treasury Bills already in issue and have traded in the “artificial” secondary market?
What will be paid on maturity? Rands?
One hopes Treasury Bills become RTGS balances that may still be denoted in US dollars as Government would want to give the impression of parity. It is, however, important for the Central Bank to assure bankers that TB maturities will not be backed by figures backed by thin air.
f. Not long back, we were giving incentives to exporters due to the chronic current account deficit hitting the economy.
If 40 percent of all export proceeds is converted to rands, are we really incentivising exporters?
40 percent conversion
The motivation for “randisation” could be inspired by the success of Siress. The rand, in that light, is the settling currency for Sadc countries that are part of this Siress system.
In July 2013, Siress became operational in South Africa, Namibia, Swaziland and Lesotho, all of which form the Common Monetary Area.
Siress implementation supports the aims of other Sadc initiatives such as harmonisation of trade tariffs, smoother and efficient border controls of trade transactions and integration in information communication technologies.
The system has relied on the active participation of the private sector, notably chambers of commerce, and commercial banks affiliated to the Sadc Banking Association.
◆ Mr Christopher Mugaga is the Chief Executive of the Zimbabwe National Chamber of Commerce.
