Former Finance Minister and opposition stalwart, Tendai Biti this week sent the business community into apprehension when he claimed that the government, through the Reserve Bank of Zimbabwe (RBZ), would introduce new currency to replace the surrogate bond notes that have largely caused market mispricing and distortions.
The introduction of the supposed new currency was expected to coincide with the presentation of the Monetary Policy Statement (MPS) by central bank governor John Mangudya. Until our time of going to press, Mangudya had not presented the MPS which was expected two weeks ago or earlier.
In response to Biti’s claims, Finance and Economic Development Minister Mthuli Ncube had this to say: “Well, he is not in Government, but it is up to him to say whatever he wants to say. He is free to comment and say anything. “He is a member of the opposition so that is always welcome. It keeps us on our toes, but we have policies, we will do it when we are ready. But we have a game plan, a roadmap and we will do it when the conditions are right. “I cannot give a timeline, I have always consistently said in 12 months’ time we should have done a lot in reforming our currency and monetary system and I still maintain that.”
While the government maintains the exchange between the bond note and the United States dollar is pegged at 1:1, the reality is that the rate stands at 1:4 on the flourishing black market.
The fact that Biti went public about the currency issue is not by coincidence and we firmly believe the issue of currency reforms is urgent and needs to be addressed as soon as possible because of the prevailing market misrepresentations. Some believe that the authorities must liberalise the exchange rate to reflect the truth on the ground.
It appears the government has not been resolute on this very crucial matter and there has been different signals on the subject especially by Minister Ncube. Upon his appointment to the Finance Ministry top position in September last year, Ncube indicated that he would phase out the bond note. The bond note was introduced in 2016 as an export incentive scheme, to encourage exports and address the liquidity crunch in the country. While they were generally accepted when they were introduced because they were trading with the United States dollar at 1:1, the bond note has not had the same reception after they flooded the market amid speculation that the central bank churned out the notes without proper backing of the United States dollar reserves.
The resultant fact was that the transacting public began to lose confidence in the bond note thereby fuelling black market. Since then, the parallel market has gained ground as stand-in currency is now trading at 4:1 against the greenback.
This was informed by the fact that the black market for forex has been determining the benchmarks for exchange rates, often resulting in unpredictable swings that once saw rates for the USD and RTGS dollars/bond notes shoot up by over 400%
Prices of basic commodities have risen dramatically, while inflation has also taken the same route. According to ZimStat, the year to year inflation rate stood at 20,85% in October last year up from 5,39% in September. It was a 15% jump as determined by the Consumer Price Index.
That is why we think the government should undertake currency reforms that will stir the country out of economic turbulence. The multicurrency system the government has adopted has not brought positive results on the economy, justifying the need for the country to have its own currency backed by reserves.
The government says the Real Time Gross Settlements (RTGS) balances at banks and bond notes in circulation, are safe and secure and that there must be no pressure to exchange or offload these balances, but there is general anxiety in the market.
Whether the government believes it or not, the prevailing situation with regards to currency has created general suspicion in the market.
