RBZ turns to IMF windfall

LIVINGSTONE MARUFU

The Reserve Bank of Zimbabwe (RBZ) plans to utilise special drawing rights (SDRs) received from the International Monetary Fund last month as well as intensifying the use of letters of credit to stop the haemorrhaging local currency, it has emerged.

Zimbabwe received about US$1bn from the global lender which was earmarked to provide additional liquidity to deal with  adverse effects of Covid-19 pandemic.

RBZ governor, John Mangudya, told Business Times that the central bank has come up with a cocktail of measures to stabilise the exchange rate.

He disclosed that the central bank could turn to SDRs to extricate the economy from the ZWL$/US$ exchange rate rot.

“If other measures can’t give the desired results the bank could make use of the SDR resources as international reserves to support the currency stability. The SDRs will thus provide the cushion required to stabilise the exchange rate in the economy,” Mangudya told Business Times.

He added: “Another option will be  the utilisation of the existing LCs facilities for the importation of strategic commodities and capital goods in order to lessen the demand on the auction system. Banks  are expected to improve the efficiency of LCs.”

In the past few weeks, the Zimbabwe dollar has been on a free-fall against the US$, resulting in sharp increase of goods and services in the country.

The local dollar has hit record lows of ZWL$190 against  the US dollar in the parallel market. At the auction system the Zimbabwe dollar is this week pegged at ZWL$93 against the greenback.

This has been a huge blow to local companies as they have been forced to source the greenback from the parallel market where premiums are punitive because the RBZ has been battling to settle a huge backlog of  allotted funds  for at least two months.

Mangudya also said  the central bank   is committed to expunge the foreign exchange auction allotment backlog and ensure its non-recurrence through and supporting banks to promote financial intermediation to leverage on the current long foreign exchange position of around US$1.7bn managed by banks.

Analysts suggested that banks were conduits to the illicit deals.

Mangudya said banks should desist from facilitation of foreign currency trading through foreign currency matching but bring forex to the auction system.

Last week, the Financial Intelligence Unit (FIU) warned banks  and individuals to distance themselves from illicit deals.

RBZ said the FIU and banks will increase monitoring and reporting of suspicious transactions and banks urged to implement RBZ directives on freezing of bank accounts for foreign currency manipulators and abusers.

The central  bank continues to tighten money supply under its conservative monetary targeting framework to ensure that it is not a source of exchange rate destabilisation.

RBZ will accelerate implementation of special attractive money market instruments including exchange rate linked instruments to improve the store of value status of the local currency compared to the holding of US$.

The Zimbabwe National Chamber of Commerce chief executive  officer, Christopher Mugaga  said the auction system needs to be refined.

“The logic is that if an economic agent can bid as high as is needed to access foreign exchange on the auction market, then they would prefer to come to the auction and bid higher than risk transacting on the parallel market.

“Hopefully, this will take the sting out the parallel market and then make the auction the leading price discovery mechanism for forex ,” he said.

Economic analysts said the foreign exchange rate system on its own was not a solution to all the challenges facing the economy as it needs to be supported by other policies to boost productivity and contain money supply growth.