RBZ must address interbank market, exchange rate decisively

Mthuli Ncube

Editorial Comment

THE reintroduction of the interbank market by the central bank was greeted with relief by business who relished the opportunity to access foreign currency on the official market and avoid dealing with the treacherous, but much more verdant black market.

Zimbabwe has struggled to manage its currency market since it abandoned its own money for the United States dollar in 2009 after hyperinflation reached 500 billion percent in December of 2008. Since 2016, the country has endured a shortage of hard currency and the situation has only worsened.

The belief in business circles was that the inter-bank market would generate an exchange rate between the real-time gross settlement dollar (RTGS$) and the US dollar to eliminate the distortion that has been plaguing the Zimbabwean economy and led to a three-tier pricing system.

But the central bank set the rate too low to make an impact. A rate of RTGS$ 2,5:1 USD was always too low when the parallel market rates were hovering around 3,8. The plan failed, with companies lining up to buy the foreign currency, but with no inflows. The apex bank then shot itself in the foot by setting another exchange rate for miners at 3,5 to the USD. That automatically told the market which way the rate should go. The result was that the interbank had not performed to expectations, with many unanswered questions around the selection process of the beneficiaries and also the retention period for exporters, which business argued was inadequate.

An exchange rate of 3,5:1 is much closer to the black market rates and is enticing enough for companies and individuals to begin to use banks to exchange their foreign currency for RTGS dollars, instead of using the black market or stashing their bank notes in pillows.

This will in turn help the government to maybe start to rebuild its foreign currency reserves from next to nothing by buying those dollars from banks and provide a platform for the relaunch of the local currency, which Finance minister Mthuli Ncube said it was possible later in the year.

The latest attempt by the authorities to deal with the chronic cash shortages involved the introduction of the transitional currency, the RTGS dollar, which combines electronic money, bond notes and coins, as well as Treasury Bills.

According to the Confederation of Zimbabwe Industries (CZI), this move has various implications, especially in relation to the preservation of value and has created distortions in the market, with many stakeholders losing value while others made considerable gains.

CZI in a statement on Tuesday argued that the brutal reality was that confidence in our financial system has been affected by these necessary actions.

Attention should, therefore, be given towards confidence, building. Going forward and to achieve Vision 2030, authorities should not let slippage of confidence happen again.
We agree!