Money printing fears mount

PHILLIMON MHLANGA  / LIVINGSTONE MARUFU

Government is said to be printing the Zimbabwe dollar in large quantities and pumping it into the fragile economy, which has seen a fast devaluation of the local currency and the flourishing of the parallel market.

The concerns come as the local currency has tumbled against all major currencies at a time it was expected to stabilise due to the onset of the 2023 tobacco marketing season.

Despite threats to crackdown on speculators, the Zimbabwe dollar is on a downward spiral against all major currencies. This week, the exchange rate rocketed to ZWL$2500: US$1 at the beginning of May from ZWL$1600:US$1 at the beginning of April.

On the formal market the Zimbabwe dollar was trading at ZWL$1070: US$1 from ZWL$932:US$1 at the beginning of April.Multiple sources said the government was printing excessive money for purposes of paying farmers and contractors.

The printed excessive cash is also said to be funding campaigns for the forth-coming elections.

President Emmerson Mnangagwa is yet to proclaim the date of elections. Elections are expected to be held between July and August.

“They are creating additional money out of the blue and indiscriminately,” one Treasury source, which requested not to be named, told Business Times.

Another government source said: “Treasury is battling to fund its ZWL$4.5 trillion budget. It has resorted to printing additional money.”

All efforts to get a comment from the Reserve Bank of Zimbabwe (RBZ) Governor, John Mangudya and Finance and Economic Development Minister, Mthuli Ncube were futile.

The sharp depreciation of the local currency has jolted business with the

Confederation of Zimbabwe Industries (CZI) held a crisis meeting this week on how to navigate the stormy waters.

“We would like to meet both the Treasury and the central bank over the recent price increases. We would like to understand where the excess liquidity is coming from,” CZI president Kurai Matsheza said this week.

At Tuesday’s crisis meeting, CZI members requested an urgent meeting with the Reserve Bank of Zimbabwe governor John Mangudya, Matsheza said.

“After meeting the governor, we would like to meet Finance Minister Mthuli Ncube on the recent wave of price increases and get to understand the origins of excess liquidity which  is having an impact on the parallel market exchange rate and basic commodities,” he said.

The Confederation of Zimbabwe Retailers president Denford Mutashu said the space for the ZWL$ continues to be stifled by the high demand for US$ both for value preservation and medium of exchange.

“The engagement is ongoing with both fiscal and monetary authorities concerning the recent price increases and volatile exchange rate and we are very optimistic of a more stable environment that resonates with all parties that include government, business, and consumers at large,” Mutashu said.

He said the accelerating redollarisation is coming with costs and the country’s situation is a bit abnormal as prices go up in both currencies.

“Value chains have long redollarised and procured goods exclusively in US$ and sell in local currency at the legislated exchange rate is posing a dilemma to retailers and wholesalers who currently have engaged in survival mode.

“Both government and business should rethink accelerated dollarisation. A strong, trusted ZWL$ is the trajectory the country needs to take to restore confidence that has seen the demand for US$ spiraling across society,” Mutashu said.

Monetary authorities have in the past attributed the depreciation of the local currency to low confidence and not growth in money supply.

Persistence Gwanyanya, a member of the central bank’s Monetary Policy Committee said this week that the velocity of money is high at wholesale segment of the market—comprising of high value corporates and individuals who hold significant ZW$ such as government contractors—as every time they receive the ZW$ they tend to offload into US$ and drive ZW$ depreciation.

“This is our main problem as a country, not growth in money supply,” he said.

The central bank has introduced instruments such as the gold coins to mop excess local currency balance blamed for fuelling the parallel market leading to the rout of the local currency against the greenback.

As at March 10, 2023, a cumulative total of 31,866 gold coins had been sold in different denominations, mopping up more than ZWL$25.8bn, according to the bank’s Monetary Policy Committee.

It will issue gold-backed digital tokens with effect from May 8 as it expands the available value preserving instruments.