New measures to buttress currency reforms

The Reserve Bank of Zimbabwe (RBZ) has put in place letters of credit (LCs) amounting to US$330 million for the importation of fuel, cooking oil and wheat, as part of measures to buttress the removal of the multi-currency system by the Government yesterday.

LCs, also known as letters of undertaking, are a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods.

Further, the RBZ plans to increase the supply of forex on the interbank market through ensuring that at least 50 percent of the surrender portion of forex is channelled towards the interbank to ensure manufacturers and importers have easy access to funds.

This was said by RBZ Governor Dr John Mangudya yesterday as he outlined the five key measures the apex bank was taking to support Government’s decision to depart from the multiple currency system on local transactions, through Statutory Instrument 142 of 2019.

The multi-currency regime started in 2009 to stem runaway inflation and shortages of basic goods and services, but industrialists have been complaining that it was increasingly becoming difficult to re-industrialise when using a basket of currencies dominated by the US dollar.

The surge in parallel market rates for forex was also becoming a cause for concern as it spawned high prices of goods and services as producers and sellers tracked the black market rate.

Dr Mangudya said the RBZ, “wishes to announce that it will implement the following support measures to buttress and strengthen the local unit of account: (a) direct banks to transfer to the Reserve Bank the RTGS$/ZWL$s that they are holding as counterpart funds for the foreign currency historical or legacy debt that Government, through the Reserve Bank, is assuming at the rate of 1:1 between the RTGS$ and the US$”.

“This measure is expected to mop around ZLW$1.2 billion from the market by the end of this week. (b) Adjust the interest rate on the Reserve Bank overnight window upwards from the current 15 percent per annum to 50 percent per annum in line with inflation trends.

“(c) Remove administrative limits on the operation of bureaux de change and on the cap on margins for banks for interbank foreign exchange transactions,” he said.

Dr Mangudya also said the RBZ was putting a vesting period of 90 days on disposal of dual listed securities or shares purchased by investors on the Zimbabwe Stock Exchange.

The RBZ will also “increase supply of foreign currency into interbank foreign market by ensuring that at least 50 percent of the surrender portion of foreign currency is sold to the interbank market”.

“This will be supplemented by the use of Letters of Credit (LCs) for the importation of essential commodities that include fuel, cooking oil, and wheat. The Bank has put in place LCs amounting to US$330 million for this purpose,” said Dr Mangudya.