eBusiness Weekly
Tawanda Musarurwa
The Reserve Bank of Zimbabwe (RBZ) has indicated plans to revert to a market – based system of foreign currency exchange trading.
Such a move will mark the end of the 1:25 to the United States dollar peg, which was placed by the central bank due to the emergence of the coronavirus (Covid-19) pandemic.
The peg was meant to protect Zimbabweans from ravaging inflation due to depreciation of the Zimbabwe dollar.
However, the local dollar has continued to lose traction against the US on the unofficial market and as at yesterday it was trading at between 60 and 75 depending on location.
Said RBZ governor Dr John Mangudya yesterday: “It was resolved that a formal market-based system of foreign exchange trading will be put in place. To ensure that foreign currency trades were monitored in real time, the Committee urged the bank to expedite the implementation of the electronic foreign exchange trading system for compulsory use by bureaux de change.”
And to enhance the operations of a free-floating interbank market, the RBZ also announced a restoration of the statutory 30-day foreign currency liquidation period from next month.
The 30-day foreign currency period was introduced by the central bank in February last year, through the Monetary Policy, after which the funds are offloaded or sold to importers on the interbank market at the prevailing exchange rate with sellers getting their dues in local currency.
However, the retention threshold had been suspended due to the emergence of the coronavirus (Covid-19) pandemic.
In a statement Dr Mangudya said the Monetary Policy Committee (MPC) had decided to reinstate the 30-day foreign currency liquidation requirement.
“The Committee also resolved to reinstate, with effect from 1 July 2020, the 30-day limit of liquidating surplus foreign exchange receipts from exports in order to ensure that more foreign exchange was released onto the market,” said Dr Mangudya.
When the 30-day foreign currency liquidation period was introduced, the RBZ said it would allow the exporters to keep part of their export proceeds before compulsory conversion to local currency for periods longer than the prescribed 30 days in exceptional circumstances where such need arises to avoid choking companies’ operations.
Manufacturers could retain 80 percent of their export proceeds; gold producers (55 percent); other minerals (50 percent); tobacco and cotton merchants, for input schemes (80 percent); tobacco growers; 50 percent, cotton growers; 30 percent while horticulture, transport, and tourism would retain (80 percent).
The balance, which could not be retained at all, would be immediately converted to RTGS dollars at the prevailing exchange rate upon receipt to improve liquidity.
Industry at the time, however, said it would be more ideal to have a window of 90 days to 180 days.
The RBZ also moved to reduce the statutory reserve ratio from 4,5 percent to 2,5 percent in an effort to assist economic recovery.
“As part of efforts to assist in the recovery and growth of the productive sectors of the economy and to help with post Covid-19 recovery, it was resolved that there was need to release more financial resources for the productive sectors of the economy by banks.
“To assist that process, the Committee resolved to reduce the statutory reserve ratio from the current 4,5 percent to 2,5 percent with effect from 8 June 2020.”
