RBZ turns on printing press

Targets ZW$1bln notes and coins Industry demands substance to support the interbank market


Tinashe Makichi and Livingstone Marufu

The Reserve Bank of Zimbabwe is set to turn on the printing press to support the formalisation of the local currency, the Zimbabwe Dollar but will ensure that it manages inflation to reasonable levels of below 20% by year end.

Central bank chief John Mangudya says the bank will soon print ZW$1,5 billion for initial circulation to grow money supply following the new currency reforms as well as manage inflation which had soared to historic levels in 10 years.

This comes after government formalised the local unit and dumped the multi-currency system which had been in place for 10 years. The ZW$1,5 billion will be inclusive of notes and coins.

Already, there are ZWL$540 million notes and coins in circulation, a figure which has grown from the ZWL$450 million at the beginning of the year. Mangudya has in the past said that he was injecting new bond notes for tobacco growers and as a result there had been a steady increase in money supply.

According to RBZ statistics for March 2019, broad money supply (M3) was at $10.63 billion, up 2.29% from February, 38.14% from March 2018 and 6.1% from December 2018. The annual growth has been primarily driven by demand deposits, which have grown by 49.52%. During the month, demand deposits accounted for 81.38% of broad money; time deposits, 13.52%; currency in circulation, 4.39%; and negotiable certificates of deposits, 0.71%.

The monetary base, which indicates the amount of currency in circulation amounted to $3.17 billion at the end of March 2019, marginally down from $3.2 billion in February but up 36.6% from $2.3 billion in March 2018. The RBZ reserves were at $379.8 million, up from $387.1 million in February 2019. The March 2019 monetary base balance comprised of $86 million in bond coins, $442.5 million in bond notes and $2.56 billion in electronic balances. The decline in the base from March stemmed from a 2.5% fall in electronic balances while bond notes in circulation were up 1.3% from February and 53% from March 2018.

Mangudya said the central bank would drip feed the Zimdollar to control circulation and avoid the printing frenzy that occurred in 2008 during the hyperinflationary era.

“We will bring in the coins and the notes but not in the quantities which we believe will cause inflation, which we think will be of the right level of cash in the market to sustain that position that had been left by forex. We are going to fill that gap with bond notes and coins,” Mangudya said.

“The paper money in the economy should be between 10 and 20 percent. So when you look at our deposits of ZWD10 billion in the economy it means that Zimbabwe requires for now around ZWD1 billion to ZWD1,5 billion of coins and notes in circulation. Currently we have about ZW$540 million of bond notes and coins, so that means we need to top it up.”

This comes as local business leaders want the central bank to inject a significant amount of foreign currency on the interbank foreign currency exchange platform in order to enhance normalcy and preserve the value of the local currency.

The dumping of the multi-currency regime has seen rates tumbling on the parallel market to 8.5-9x from 13x last week. This comes as the recent sizeable interest rate hike to 50% per annum suggests the government is taking up a more aggressive stance towards liquidity management, and through that exchange rate management in the hopes of arresting the runaway inflation.

Business leaders who spoke to Business Times backed the re-introduction of the Zimdollar adding that it must be supported by substance to avoid reversing the results achieved so far in the short term.

Surface Wilmar chief executive Sylvester Mangani said the move taken by government needs to be buttressed by substantial forex amounts following a positive response by the market to the announcement.

“It is a good move provided forex is made available on the interbank market. This should start now with a bang otherwise the momentum will be lost. RBZ needs to build confidence by availing forex to support this move in the early days,” Mangani said.

“At the moment the parallel rate has responded to the announcement, if it is not backed up by substance on the formal interbank market, everything may start reversing.”

Zimre Holdings Limited CEO Stanley Kudenga called for fiscal and monetary discipline for the Zimdollar regime to work adding that its reintroduction would go a long way in addressing various market distortions.

“From a business point of view it’s a good move and one of the key challenges we were facing as business is we were underwriting business in ZWL on the insurance side but the costs in terms of claims are paid in USD, so there was a misalignment in terms of our revenue and our costing,” Kudenga said.

“With this new development, effectively these have been aligned. When we were trying to push revenue in USD it was going to be difficult because you then remove a certain segment of the market from that business.”

The call by business for fiscal discipline and the injection of more forex into the market comes as capital markets players want clarity from authorities on the sale of dual listed counters.

This comes after the central bank said those who buy dual listed counters have to dispose of them after 90 days. in a circular yesterday, Zimbabwe Stock Exchange CEO Justin Bgoni told authorised dealers that with effect from June 25 2019, any investor who was to purchase a dual listed share on ZSE shall only be allowed to sell the share on the ZSE or on an external stock exchange after a vesting period of 90 days from the date of initial purchase. This is in line with the Exchange Control directive.

ZSE said investors wishing to uplift dual listed shares from external bourses for purposes of selling the shares on the ZSE, shall only be allowed to be executed after a period of 90 days from the date of registration on the ZSE. The directive affects eight counters—Old Mutual, Hippo, NMB, PPC, Hwange, Amalgamated Regional Trading, CAFCA, SeedCo International and Meikles Limited.

Brokers told Business Times last night that the directive limits trading in dual listed counters.

“If I buy NMB, for example, I have to wait for 90 days to sell the shares which is unfair for investors who have bought on the local bourse and want to trade locally. In other words, it means investors will go for counters in which they can dispose of within 90 days. It’s an area the capital markets wants clarification on,” a broker said last night.

Securities and Exchange Commission of Zimbabwe chief executive Tafadzwa Chinamo said the capital markets regulator was in discussions with RBZ over issues around the recent introduction of the Zimdollar.

“We are still in engagement with the RBZ and we can only furnish you with details after finishing our engagements with the Central Bank,” Chinamo said.

Economist Persistence Gwanyanya said the reintroduction of the local currency would stem rent seeking behaviour “caused most people to hold on to the US dollar for profiteering as the illegal forex dealers created artificial rates to maximise profits”.

“Removing the strong currency like US dollar will stabilise the economic situation as illegal dealers won’t business as the currency is now deemed illegal,” said Gwanyanya.

Economic analyst Witness Chinyama noted that the country has returned to “normalcy” by bringing in its currency.

“Zimbabwe has gone for a decade without its own currency and it was not normal for a country to go for such a long time without its currency now that we have just introduced we have gone back to normalcy.

“We are happy that the US dollars can now be traded through formal channels thereby pacifying the illegal money dealers who would willy-nilly increase the rate at any given time,” he said.