Almost all in business and most Zimbabweans will welcome yesterday’s Monetary Policy Statement that legalises and tackles the parallel currency market, and gives more agency to the Reserve Bank of Zimbabwe management of exchange controls, bans dual pricing for goods and services in Zimbabwe, and ensures that exporters must use or sell their retained forex earnings within 30 days.
The developments should bring down, or at least stabilise, many prices that had been racing out of control and reverse the creeping dollarisation of the economy.
The major development announced by RBZ Governor Dr John Mangudya yesterday was the logical extension of his October statement when he separated forex nostro accounts and RTGS accounts so exporters would bank their retained foreign earnings separately from their Zimbabwean earnings.
Now exporters will be able to sell the retained forex they do not need for their own needs to importers wanting forex in a market-driven, but safe environment within the banking system. At the same time, the RBZ has picked up the idea used by many others, including South Africa, of actually forcing exporters to use or sell their retained forex within 30 days. This will help produce liquidity in that market and prevent exporters “playing” the currency markets.
At the same time the RBZ, which still controls the forex that exporters are not permitted to retain, will be active. The allocations committee will still be responsible for allocating from the RBZ pool for critical and essential imports, payments of services and Government debt. Fuel, medicine and cooking oil were some of the items mentioned that remain on this list.
But Dr Mangudya also promised that the RBZ will intervene actively in the interbank forex market to ensure stability and the lowest possible premiums.
Like Dr Mangudya, we expect the interbank rate to be significantly lower than the recent black market parallel rates, but even if the drop is small, the price of many essential imports of raw materials Zimbabwean industry needs and which have been increasingly supplied at parallel rates should drop quickly.
Many industrialists, unable to enter the illegal parallel markets, have been forced to buy goods and services from middlemen or from exporters with retained earnings. And both added significantly to costs. Excluding middlemen from the process will cut final prices.
Banks will not be running the interbank forex market for free, but their charges will be a tiny fraction of what the grey or black markets were earning. Fortunes were starting to be made by shuffling paper. They need to be made by making goods and providing services people want and need.
But for the new system to work the existing rules and regulations over illegal forex sales will have to be enforced systematically and strongly.
The remnants of the illegal markets will be serving those who wish to smuggle goods and services or who wish to make illegal capital transfers; neither oils the Zimbabwean economy and both need to be stopped. The blind eye now needs to be wide open.
At the same time the creeping dollarisation of some sections of the economy had to be stopped. Now that legitimate businesses can access foreign currency at the new and lower market rates the emergency system that some implemented, and some will say their survival forced them to do this, is no longer needed.
In fact some may find they have lost money in the process by offering high discounts.
So generally, the RBZ should achieve its stated aims of a properly regulated interbank forex market, a falling of import costs for legitimate businesses, greater stability in all markets, greater competitiveness as exporters of manufactured goods no longer have to pay famine prices for required imported inputs, and the retention of far greater value of RTGS account holdings as people realise that this is the core measure of usable wealth in Zimbabwe with possible dollarisation thrust back.
For those who still worry about bond notes and coins, and these have been returning to their correct role of allowing small transfers of RTGS funds in recent months, we all need to remember that they are now miniscule fraction of the RTGS sums.
Everyone has switched to modern digital money and notes and coins are just useful for little payments, bus fares, a couple of onions and the like. Worrying about them is like worrying about the supply of postage stamps.
Dr Mangudya refrained from taking more steps than were needed.
Zimbabwe’s economic reforms, and the cleaning up of a lack of fiscal discipline for too many decades, have to be done a step at a time. We need to keep what we have while we move forward and expand the economy, not destroy everything and then try and rebuild.