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Inter-bank Forex market is Zimbabwe central bank's new move

Samson Ononeme | Feb. 22, 2019
Inter-bank Forex market is Zimbabwe central bank's new move

Zimbabwe Central Bank Governor has launched the Inter-bank Forex market in the country saying that the new move would ensure "no one goes to buy currency from the parallel market"

February 22, 2019 | AtoZ Markets - The Governor of the Central Bank of Zimbabwe, John Mangudya has stated on Wednesday that it is introducing a new interbank foreign exchange (Forex) market, thus devaluing its quasi-currency which had been officially pegged with the US dollar. 

As per the report, the Governor announced that a new Forex market will be established with immediate effect as they have provided a formal way of trading in foreign currency aimed at addressing Zimbabwe’s currency crisis.

While announcing the new monetary policy measures, Mangudya said that they have basically formalized what is happening by ensuring that no trader or investor buy currency from the parallel market. Commenting on the impact of this latest move, he said:

"The inter-bank exchange system will have significant positive effects on the economy's external and fiscal sectors, domestic production and on the welfare of citizens".

The essence of this new policy is to devalue the local bond note -- the quasi-currency -- which exists in note and electronic form known as Real Time Gross Settlement (RTGS).

Introduced by Robert Mugabe in 2016 to address cash shortages, the quansi currency had been pegged against the US dollar at 1:1 while the parallel market rate was much higher.

Mangudya further expressed optimism that the new measures will help boost RTGS electronic payments for the domestic transaction while scrapping the multi-tier pricing system which has seen goods and services priced in US dollar, bond note or RTGS.

Also, independent economist, John Robertson has lauded the new monetary policy saying that it was a good move. In an interview with AFP, Robertson said:

"The government has decided to let the market decide the exchange rate...It's possible the exchange rate will stabilize. There has been little certainty. This is a good start but there are many more things to be done."

Some consider new policy disastrous

However, observers have warned that the new policy could have a “disastrous” effect and further deepen Zimbabwe's economic crisis.

In a recent seminar in Johannesburg, Derek Matyszak, a legal expert at the University of Zimbabwe told the audience that RTGS is "phantom money". "It is printing of money electronically... It doesn't exist".

Moreover, Tapiwa Mashakada who is in the opposition party and the former economic planning minister has expressed his view saying that the authorities pushing of the RTGS is a "clever" way of re-introducing a domestic currency. Mashakada has been quoted as saying:

"This is a Zimbabwe dollar by any means. Zimbabwe now has a sovereign currency called 'RTGS dollar' which is a euphemism for Zimbabwe dollars. It's like saying you eat bacon but not pork...The domestic currency has bounced back without addressing the key fundamentals."

Zimbabwe hobbled economy plunges millions deep into poverty

For more than a decade, Zimbabwe's economy has been on a downturn with high inflation and cash shortages which forced banks to put a limit on withdrawals as depositors spent long hours queuing to withdraw cash.

Following a brief military coup in 2017, President Emmerson Mnangagwa took over from the long-time ruler, Mugabe and has promised to revive Zimbabwe's moribund economy.

In October 2018, the finance minister, Mthuli Ncube introduced a 2% tax on all electronic transactions. This, however, triggered price hikes as well as shortages of fuel and also affected basic commodities like bread and cooking oil.

In January, the prices of fuel skyrocketed as Mnangagwa announced a more than 100% hike. This, however, sparked nationwide protests which led to the death of more than 18 persons after soldiers were deployed to crush the protests.

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Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of AtoZ Markets.com, nor should they be attributed to AtoZMarkets.