Reserve Bank of Zimbabwe governor John Mangudya has said the interbank foreign currency trading platform has lost steam after some unscrupulous forex dealers manipulated the system causing instability in the financial sector.
The development comes at a time when 50 powerful corporates continue to trade their money on the parallel market causing the exchange rate to go up.
Mangudya said the interbank platform has traded over US$1.3 billion since its inception in February with much of the forex going towards the purchasing of fuel and critical raw materials.
Mangudya told Business Times that the Monetary Policy Committee (MPC) will work to ensure sanity and confidence are restored in the financial sector.
“It (interbank) was working very well until some (sentiment) went through the financial services sector and then we lost momentum and we are praying for it to come back again,” Mangudya said. Interbank rate which stands at 15.7 started trading at 2.5 in February.
Despite failing to catch up with the parallel rate which is at 19.5, the interbank platform has managed to bring stability in the market as some bureaux de change are trading at the same level with informal forex dealers.
Mangudya said if confidence levels are low, people will continue holding on to foreign currency. but when confidence levels are high, people will exchange their money into the economy to buy goods and services. He said productivity will help to get the country to get out of the woods as less forex will be used for importation.
“Once we have plenty of production in this country, people will not rate pricing into dollars. Whenever you are changing from a dollarised economy to your local currency, there are those legacy and historical experiences that we always have and we want to have more value to our local dollar,” Mangudya said.
Central bank said the local banks have sufficient funds for their day-today operations with their clients, but what they do not have is sufficient funds to promote production in this economy. On injecting new notes and coins into the economy, Mangudya said people should desist from a “disease of thinking that cash causes inflation”.
RBZ said the country will continue using small denominations until people graduate from that “hypothesis of thinking that increased cash will cause inflation”.
Mangudya said the 50 influential corporates, which account for ZWL$9.5bn of the ZWL$19bn deposits, should be kept under constant scrutiny to avoid the manipulation of exchange rates and gradually cause inflation.
“Money that increased due to increase in reserve money we have sterilised it, otherwise that money that cause high powered money increase exchange rate and therefore inflation. That is the money that we are going to use for redeployment towards sector and that we have addressed as MPC,” Mangudya said.
According to RBZ, sterilisation is the mopping of money on the market to the central bank so as to remove its effectiveness of causing havoc in the market. ZWL$2.8 billion of that money was extend to agriculture for the 2019/2020 summer cropping season.
Economists argue that the central bank is simply moving business mogul Kuda Tagwirei’s excessive money towards agriculture which his company Sakunda was doing since 2017. In its main objective of the 2019/2020 agriculture season, Sakunda will be sponsoring 200 000 households.
Meanwhile, Finance and Economic Development Minister Mthuli Ncube said with the level of inflation in the economy there is need to put small denominations in the economy as cash is always cheaper to use. The monetary authorities brought the coins as they do not easily depreciate.