The Sunday Mail
The Confederation of Zimbabwe Industries, the country’s biggest industry representative group, is lobbying the Reserve Bank of Zimbabwe to consider partially floating the exchange rate in order to minimise distortions arising from the present currency peg, but critics have said this would worsen an already precarious situation.
CZI president Mr Sifelani Jabangwe told The Sunday Mail Business last week that the partial liberalisation of the exchange rate would allow businesses generating foreign currency to realise “fair value” for money.
Government maintains that bond note and RTGS values are at par with the US dollar. But Mr Jabangwe said while Government’s decision to separate the Foreign Currency Accounts/Nostro and FCA/RTGS holding accounts was welcome, companies that generate foreign currency are reluctant to trade their dollars at a rate of 1:1.
“It’s a stalemate,” Mr Jabangwe said.
“Forex generators are sitting on their money; they can’t trade because there is no fair value at a rate of 1:1. We have proposed a trading mechanism to the authorities for a partial free-floating system. It does not necessarily have to be a full float. We are still waiting for the response (from the RBZ).”
Some critics have, however, said any piecemeal approach towards reforming the currency regime without necessarily dealing with the underlying structural imbalances would only create more distortions in the market.
Economist Mr Brains Muchemwa, who is also founder and managing director of Oxylink Capital, said the big RTGS balances in the market cannot be easily sterilised through open market operations, neither will the proposed austerity measures be implemented in full in the face of rising inflation.
“Therefore, floating the exchange rate is the only lever to optimise consumption and allocate resources efficiently in order for the economy to preserve jobs and attract fresh capital at a time the Government has been scouting for fresh investment under the ‘Zimbabwe is open for business’ drive,” said Mr Muchemwa.
Dr Gift Mugano said while keeping the exchange at par was not ideal under normal circumstances, maintaining the bond note and RTGS at par with the United States dollar was the “best Zimbabwe can have given its current situation”.
“If we float on the back of foreign currency shortages in this economy, the rate will shoot up. This will result in serious erosion on savings and pensions.
“Workers will demand salary increases. How many companies are going to get cash flows to meet salary increments? Floating the exchange rate is not a desirable situation because the economy will certainly crash.
“Probably it is critical for those calling for the floating of the exchange rate to do a cost-benefit analysis so that there is robust, comprehensive and undisputed evidence that support their position.
“What we need to see from the Government is robust implementation of its policies so that it can build confidence,” said Dr Mugano.
While the official exchange rate between the US dollar and the bond note or RTGS has remained at par, analysts say the separation of the FCA/Nostro and FCA/RTGS accounts was an admission by the monetary authorities that the RTGS balances were not equal in value to the dollar. Following the announcement on the separation of the accounts by the central bank, the rates went up by as much as 500 percent on the black market, but have since settled at around 350 percent.
As such, some economists argue that any effort to liberalise RTGS and US dollar accounts or rates will be tragic as account holders will move all their excess RTGS balances into the market, which will result in a skyrocketing exchange rate and an inflation spiral.
RBZ Governor Dr John Mangudya was not available for comment by the time of going to Press.