Dumisani Nsingo, Senior Reporter
THE Reserve Bank of Zimbabwe has temporally frozen disbursing US dollars to banks for onward withdrawal by individual customers as this was now a haven of illicit financial activities where unscrupulous people were mopping the money and reselling it on the black market.
The Central Bank has been importing cash to ease shortages but instead of the money circulating in the economy and in banks, it was quickly mopped up and siphoned to the black market. The Central Bank is now focusing on using the hard currency to support the productive sector so that it can increase production and help boost exports and foreign currency earnings.
In an interview, RBZ governor Dr John Mangudya said the Central Bank was now prioritising channelling foreign currency towards enhancing the country’s productive sector to stimulate production and exports instead of directing it for onward withdrawal by the generality of the banking populace. He said injecting US dollars into banks would only serve to fuel its illicit sale of on the parallel market.
“Even if we put a lot of money into ATMs (Automated Teller Machines), people will take the money and go and sell it, because the US dollar is being looked to as an investment as opposed to be a medium of exchange. So what makes people take money from the ATM is that they want to sell it 50 cents above its value . . . it has become an industry of selling money but we need to sell products. So there is now what we call an opportunity cost, should we put more money into ATMs for people to get money or should we put more money into the industry, which is employing people. It’s better to go for the latter,” said Dr Mangudya.
The country has been facing bank note shortages since last year resulting in the use of plastic money. RBZ introduced bond notes, a local parallel currency pegged at par with the US dollar in November 2016 under a $200 million Afreximbank loan facility.
President Mnangagwa has hinted that the country might be forced to adopt its own currency post 30 July elections to ease the cash shortages. He said modalities were being looked at to solve the cash situation.
Dr Mangudya said the apex bank would continue advocating for the country to use the multiple-currency regime until most of its economic fundamentals are addressed, mainly its trade deficit.
“Currency reform requires that we address the challenges that the economy is facing, which are your fiscal deficit, which is the major source of money in the market. That fiscal deficit also affects the current account deficit because it feeds into more money even into the people’s pockets thus it increases the demand for imports.
“So the major economic challenge we are facing is that we need to first of all deal with fundamentals. Our issue is not a currency phenomenon. It’s about a production phenomenon. It’s about dealing with the fiscal deficit so that we bring the economy into balance,” said Dr Mangudya.
He said Real Time Gross Settlement (RTGS) balances were not matched with nostro balances mainly driven by trade deficit.
“We need to concentrate on finding the harmony or the removal of the mismatch between the RTGS money and the foreign currency money in the economy. If you look at our RTGS money, the balances are higher than the foreign currency money, those are the ones that cause premiums in the market.
“So from a simple banking perspective we need to deal with the fundamentals that the economy is facing so that at least it becomes a sustainable currency reform of whatever we will have done in future. So for now we are using the multiple currency system and we need to remove the imperfection by making sure we increase production,” said Dr Mangudya.
He, however, expressed satisfaction at the impact made by the Central Bank’s export incentive scheme, further stating that a number of companies had increased their exports by more than 70 percent and their capacity utilisation by over 80 percent.
“We are quite happy that the export incentives that we are giving to the industry or to the economy are paying plenty of dividends. If you check all companies that are exporting now, they will tell you that the export incentive scheme was and is the panacea for increasing exports in Zimbabwe,” said Dr Mangudya.
He said the new political dispensation’s stance of creating a conducive environment for the ease of doing business was a springboard to the turnaround of the country’s economy.
“If you put policy measures against capital people won’t invest because they will be skeptical that they will channel their investment for an empty cause but right now Zimbabwe is open for business. These are the fruits of opening up the economy for business, just imagine its only six months (since the new political dispensation).
“Right now we feel we have done very well as a country under very difficult circumstances but we are not saying there are no challenges. We need to celebrate that success as opposed to undermining ourselves, because companies have improved and people are getting employed,” said Dr Mangudya.