Tuesday, May 10, 2016

Multi-currency Regime is Here to Stay: Mangudya
“We do not have hidden agendas and therefore we will not surprise people by returning the Zimbabwe dollar”

Happiness Zengeni: The Interview
May 7, 2016

This week the Reserve Bank of Zimbabwe announced eight policy measures that are meant to arrest the cash crisis currently prevalent in selected banks. One of the policy measures includes the move to introduce bond notes through an export incentive facility. The Herald Business Editor Happiness Zengeni (HZ) spoke to RBZ Governor Dr John Mangudya (JM) about this and other issues.
HZ: On Wednesday, you announced measures to deal with the cash shortages that have affected parts of the financial sector, one of which has got the whole country talking. Zimbabwe is keen to know about the introduction of the bond notes which some are saying signal the return of the Zim dollar?

JM: As you know, for the past few months, selected banks have been experiencing cash challenges and what the RBZ did was to come up with a raft of measures which are meant to alleviate the problems. They are eight in total but to zero in on your question, I also announced that the RBZ and Afreximbank had come up with a stabilisation support facility for foreign exchange and exports amounting to $200 million.

What we said was that in order to curb the abuse of the facility through illicit financial flows, the facility will be availed to exporters in bond notes and coins which will operate alongside the currencies within the multi-currency system.

The notes will be availed as an export incentive of 5 percent and 2,5 percent for big mining companies, such as Mimosa, Zimplats, Unki, Bindura Nickel, etc. We are trying to stimulate production. The bond notes will be at par with the US dollar and will therefore sit in the US dollar account. It is not the return of the Zim dollar.

HZ: Why didn’t you just inject the money straight into the market rather than converting it to the bond notes and what security do people have that it will not along the way change into the Zim dollar or the Zim dollar situation where they will will wake up and find it without value?

JM: Initially we thought of putting money straight into the market but then we considered the issue of capital flight where some unscrupulous elements were moving the money out of circulation.

I can give you the genesis and series of the wanton list of financial flows in this country, and you would be surprised, they are significant. Banks report to us what they call suspicious transactions every day. From my Monetary Policy Statement in January, I highlighted that Zimbabwe had lost nearly $2 billion from illicit financial flows.

We do not have hidden agendas and therefore we will not surprise people by returning the Zimbabwe dollar. You know, I see Zimbabwe as a financially traumatised society, it’s almost like a rape case. What we are doing is breathing life into the economy by promoting exports, which are key if the economy is to transform.

We expect things to gradually move from here but the multi-currency system is here to stay. I have said this before, the local currency will only come back only when the macro-economic fundamentals are correct and that time is not now. And on this we will be very transparent because transparency is a key pillar in the way the central bank operates.

HZ: What plans have you put in place to ensure your measures, particularly on the bond notes, won’t face resistance?

JM: I acknowledge that we need to build confidence in this economy for transformation to be successful. This economy is too rich to be poor, but what is needed in this country is discipline and self-belief. We need to move in line with best practice.

The bond coins have operated perfectly and still have the same value as the US dollars. They eased transaction challenges and the notes are just a continuation of that series. We have put in place an awareness programme to educate people about what is going on.

This programme starts with the media, which we believe are the main builders of confidence. We are also working with the Bankers’ Association of Zimbabwe to ensure that the message is disseminated effectively in the country.

HZ: You also announced measures to return the rand into circulation, how is that going to work considering its volatility over the past months?

JM: In 2009, Zimbabwe introduced the multi-currency system but over the years, we have turned into a single currency state and this has contributed to the cash shortages in the financial sector. We need to go back to the fundamentals of that system.

As such we have put in place complementary systems across all sectors of the economy. We have also put incentives when we said cash withdrawal limits on the rands will be 20 000 which is more than $1 000. For Zimbabwe, South Africa is our biggest trading partner but we still price goods purchased from that country in US dollars, prejudicing consumers in the process as they buy the goods at higher prices. What we are saying is that in view of the fact that we get 60 percent imports from South Africa, it’s only fair and prudent that shop owners and businesses should think in rand terms as opposed to abstract USD prices.

HZ: How will you get retailers to comply on the rand pricing?

JM: First and foremost, I am a believer in moral suasion. The retailers are there to serve the people and should do what’s in the best interest of the economy so that their survival is guaranteed. If moral suasion, my office has got backing from a number of Acts such as the Anti-Money Laundering Act, which can enforce this.

HZ: Now that you have reduced daily withdrawal limits are you not killing the ability of people to transact?

JM: The average salary in Zimbabwe is $300, so who needs to take out $10 000? The daily withdrawals even at $1 000 are still high compared to other countries. In Switzerland its about 800 Swiss francs and that is standard practice. In the USA it’s $500 a day, £300 in the UK and R3 000 in SA. We are putting too much burden on the banking system and as a result causing cash shortages ensue.

No comments: