RBZ strengthens multi-currency system

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HARARE – In a bid to strengthen the multi-currency system for value preservation and price stability, the Reserve Bank of Zimbabwe has unveiled policy measures which maintain the exchange rate at par with the US$ but admits the loss of value through the re-introduction of foreign currency accounts.

On the other hand, the new Minister of Finance and Economic Development increased the charges on money transfers to 2c per every dollar transacted from 5c per every transaction in order to widen the tax base and ensure that Government gets enough to fund its budget, which it has been otherwise funding through the issuance of Treasury Bills.

In his delayed mid-term Monetary Policy Statement, governor John Mangudya said that the central bank would not devalue the currency, at least not in the short term, as any move towards that would be suicidal.

As such banks were directed to effectively operationalise the ring-fencing policy on Nostro foreign currency accounts by separating FCAs into two categories, namely Nostro FCAs and RTGS FCAs. Accordingly, all banks are directed to use know-your-client (KYC) principles to comply with this directive to separate the accounts without requiring their clients to complete any other documentation other than for new bank accounts.

Mangudya said banks have been provided with a period of up to October 15 2018 to fully comply with this policy measure.

Banks are also expected to provide reasonable deposit rates on the Nostro FCAs in line with international best practice on such accounts. This policy measure is expected to encourage exports, diaspora remittances, banking of foreign currency into the Nostro FCAs and to eliminate the commingling or dilution effect of RTGS balances on Nostro foreign currency accounts.

The purposes of separating the FCAs is to ensure we create value for money with those that are exporting.

To ensure that the amounts (exporting and non-exporting) do not mingle.

Mingling is de-motivating to those who are bringing foreign currency. It’s suicidal to devalue because overnight people will offload their balances and create a crisis in the financial sector. It has spillover effects to the ordinary person, particularly on price increases.

The RBZ was, however, silent on the need to adopt new financial reporting standards that take into consideration the implications of bond notes and multiple currencies on financial statements.

Finance Minister Mthuli Ncube, who says that he would be also delivering fiscal measures together with the MPS going forward, as they were two legs of the same body, said that there is need to expand the tax collection base and ensure that the tax collection points are aligned with electronic mobile payment transactions and
RTGS system given the informalisation of the economy.

“Treasury introduced the Intermediated Money Transfer Tax with effect from January 1 2003 through the Finance Act 15 of 2002.

The tax was set at 5 cents per transaction, which was a specific tax.

However due to the increase in informalisation of the economy and huge increase in electronic and mobile phone based financial transactions and RTGS transactions there is need to expand the tax collection base and ensure that the tax collection points are aligned with electronic mobile payment transactions and RTGS system.”

Ncube said that to date in 2018, 1,7 billion transactions went through as compared to 50 million four years ago.

“I hereby review the Intermediated Money Transfer Tax from 5 cents per transaction to 2 cents per dollar transacted, effective October 1 2018. 37. I am therefore directing financial institutions, banks and ZIMRA, working together with telecommunication companies to extend the collection to all electronic financial transactions.”

This will not only ensure that Government gets over $2 billion per year based on H1 figures, but it attempts to contain the trading or burning of US dollars by making it expensive to move money. RTGS and ZIPIT remain the main payment systems in the country.

“This is the beginning of reforms in line with the vision of making Zimbabwe a middle income country by 2030,” said Ncube adding that the short term economic plan will be launched on Friday.

Other Monetary Policy Statement Highlights
◊ Economic growth projected at 5% in 2018 from
initial projection of 4,5% underpinned by a better-thanexpected performance across all key sectors

◊ Reserve Bank is finalising discussions with the African Export-Import Bank (Afreximbank) towards a $500 million Nostro Stabilisation Guarantee Facility (NSGF) to provide Nostro FCA holders with assurance that foreign currency shall be available when required by the account holders

◊ All exporters retain 100% of their export proceeds with the exception of gold producers that retain 30% of export proceeds; platinum, diamonds and chrome 35% and; 20% for tobacco and cotton producers.

◊ RBZ has finalised putting in place facilities in an amount of $500 million to cater for importation of strategic requirements that include fuel, electricity, cooking oil, wheat, packaging, etc. The facilities are from Gemcorp $250 million, Afreximbank $150 million and Afrigrain $100 million. These facilities are over and above the $100 million from CDC/Standard Chartered Bank, $100 million from Ecobank, $30 million from IDC of South Africa to Agribank and $25 million from the African Development Bank (AfDB) to CABS Building Society.

◊ Use of Letters of Credit (LCs) for high value transactions when making external
payments

◊ All imports to be supported by invoices whose banking details match with the payee’s name and bank account details. ◊ Strict adherence by banks to customer due diligence (CDD).

◊ Export proceeds to be remitted on a timely basis in line with existing rules and regulations.

◊ With immediate effect, all foreign truckers plying the Zimbabwean routes shall pay for their fuel in Zimbabwe in foreign currency. The same shall apply to foreign traders buying goods in Zimbabwe for sale in the neighbouring countries.

◊ Removal of 14-day window to spend forex

◊ In order to mitigate against arbitrage opportunities or abuse of this facility, with immediate effect, all purchases of gold by Jewelers from FPR shall be in foreign currency and that Jewelers shall retain 100% of their export proceeds.

◊ All sellers of immovable property to buyers with offshore funds are required to pay Capital Gains Tax from offshore sources into a ZIMRA Designated Nostro FCA. Evidence of payment shall be required during ZIMRA interviews to enable issuance of tax clearance certificate. – FinX