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RTGS dollars: Zimbabwe’s new currency

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John Mangudya

The Reserve Bank of Zimbabwe has with immediate effect denominated bond notes and coins replacing it with what they called RTGS dollars.

Zimbabwe’s quasi-currency, the bond note — which has been pegged at par with the United States dollar since its introduction in 2017 — is now subject to market forces after monetary authorities announced the establishment of an inter-bank foreign exchange market.

Presenting the country’s monetary policy, Zimbabwe’s central bank governor John Mangudya said the inter-bank forex market will bring sanity in the foreign currency market whilst at the same time promoting exports, diaspora remittances and investments for the good of the economy.

Exchange Rates
Last updated: 29 Apr 2019
100 USD = 500.0 RTGS (400.0%)
100 USD = 360.0 Bond (260.0%)
100 Bond = 115.0 RTGS (15.0%)
100 USD = 1431.0 ZAR (1331.0%)

Mangudya said the move not to fix the rate of the local currency was taken after considering the accounting, financial, economic, legal and social implications of the move within the context of the current national payment systems made up of RTGS, mobile payment platforms, point of sale (POS), bond notes and coins.

He said the country was now denominating the existing RTGS balances, bond notes and coins in circulation as “RTGS dollars.”

“After taking account of the implications and putting in place safeguards to maintain stability in the fares market, the Bank is, with immediate effect, establishing an inter-bank foreign exchange market in Zimbabwe to formalise the trading of RTGS balances and bond notes with US dollars and other currencies on it willing-buyer-willing-seller basis through banks and bureaus de change under the following framework,” he said.

Mangudya said this will eliminate the existence of the multi-pricing system, hence prices should remain at their current levels or to start to decline in sympathy with the stability in the exchange rate given that the current monetary balances have not been changed.

He said bureaux de change will be authorised to purchase foreign currency without limits but shall be limited to sell foreign currency for small transactions such as subscription, business and personal travel up to a maximum aggregate daily limit of US$10 000 per bureau de change.

Economist John Robertson said the interbank foreign currency market will stabilise the economy.

“It’s going to work better, floating is the right thing. They are avoiding the parallel market. This brings certainty and stability,” he said.

“Prices are likely to stabilise and some prices are going to come down as goods were now being sold at four times the rate.
The only question is, will Government get the rate at the same rate as others or it will stick with 1:1. If they stick with 1:1, it opens the way for corruption.”

Sifelani Jabangwe, the president of the Confederation of Zimbabwe Industries, said business had been agitating for the floating of the currency.

He said due to corporate governance issues before the latest announcement businesses were not able to go to the black market where forex was found, hence some had closed while others were not operating at full capacity.

Jabangwe said the move will also help to bring investment into the country as investors were staying away not sure about the true value of their money that they would be bringing into the country.

“Businesses wanted to trade legally with something that is officially not a rate that was set by someone under a tree or on the street,” he said.

Businessman and former Movement for Democratic Change (MDC) senator Eddie Cross said the move is likely to kill the forex black market. “Inflation is likely to go down,” he added.

However, former finance minister and senior MDC official Tendai Biti said the move will devalue people’s savings and is open to litigation.

“Further floating exchange rate & retention of the bond note will guarantee the continued existence of a key pillar of #corruption in this economy. ZANU #elites will continue raiding the RBZ for cheap foreign exchange which they will arbitrate. Real reform is ejecting #bond note,” Biti posted in a thread on Twitter.

“#Liberalizing or #floating exchange without ring-fencing RTGS balances will have the disastrous consequences of devaluing people s balances. #Floodgates of litigation will open. The RBZ will be held to account after maintaining & defending the #fiction of a bond, US $ parity.”Mail and Guardian

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BUSINESS

Zimbabwe agrees to pay $3.5 billion compensation to white farmers

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Zimbabwe White Farmers

Zimbabwe agreed on Wednesday to pay $3.5 billion in compensation to Zimbabwe white farmers whose land was expropriated by the government to resettle black families, moving a step closer to resolving one the most divisive policies of the Robert Mugabe era.

But the southern African nation does not have the money and will issue long term bonds and jointly approach international donors with the farmers to raise funding, according to the compensation agreement.

Two decades ago Mugabe’s government carried out at times violent evictions of 4,500 Zimbabwe white farmers and redistributed the land to around 300,000 Black families, arguing it was redressing colonial land imbalances.

The agreement signed at President Emmerson Mnangagwa’s State House offices in Harare showed white farmers would be compensated for infrastructure on the farms and not the land itself, as per the national constitution.

Details of how much money each farmer, or their descendants, given the time elapsed since the farms were seized, was likely to get were not yet clear, but the government has said it would prioritise the elderly when making the settlements.

Farmers would receive 50% of the compensation after a year and the balance within five years. Finance Minister Mthuli Ncube and acting Agriculture Minister Oppah Muchinguri-Kashiri signed on behalf of the government, while farmers unions and a foreign consortium that undertook valuations also penned the agreement.

“As Zimbabweans, we have chosen to resolve this long-outstanding issue,” said Andrew Pascoe, head of the Commercial Farmers Union representing  Zimbabwe white farmers.

The land seizures were one of Mugabe’s signature policies that soured ties with the West. Mugabe, who was ousted in a coup in 2017 and died last year, accused the West of imposing sanctions on his government as punishment.

The programme still divides public opinion in Zimbabwe as opponents see it as a partisan process that left the country struggling to feed itself. But its supporters say it has empowered landless Black people. Mnangagwa said the land reform could not be reversed but paying of compensation was key to mending ties with the West. Reuters

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BUSINESS

Old Mutual’s Share Price Is Focus in Zimbabwe’s Currency War

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Old Mutual Shares Zimbabwe

The share price of one of Africa’s oldest insurers is taking centre stage in Zimbabwe’s battle to bring order to its chaotic foreign-exchange system.
In the latest in a series of attempts to stabilize its currency, the government wants to eradicate the Old Mutual Implied Rate.

The gauge, used by domestic companies to determine the future cost of goods and services, calculates a potential forward rate for the Zimbabwe dollar by measuring the difference between Old Mutual Ltd.’s share prices in Johannesburg, London and Harare.

The indicator is among many “contrived phantom exchange rates” in use that “conspire to defeat fiscal policy,” the government said in a June 26 edict that halted trading on the Zimbabwe Stock Exchange and stopped most mobile-banking transactions.

The OMIR is one of the multiple exchange rates Zimbabweans use daily to navigate the nation’s myriad economic challenges, including annual inflation of almost 800%.

A perennial shortage of cash means anyone who has physical banknotes is able to negotiate exchange rates with brokers who pay the funds onto mobile-money platforms. The brokers can then sell the hard cash at an even higher rate.

That’s resulted in a widening gap between the official rate of 63.7 per U.S. dollar, and the amount at which it trades on the streets of Harare, which is now at 100.

“People have relied on making money from buying and selling Zimbabwe dollars, and not from any real production,” said John Robertson, an independent economist based in Harare. “It’s what has created these distortions.”

The OMIR also feeds into the black-market Zimbabwe dollar rate, which the nation’s bourse uses, along with the official rate, to determine the value of stock prices.

Old Mutual, founded in Cape Town in 1845, is not involved in determining the rate. Market participants take the company’s share prices in South Africa, the U.K. and Zimbabwe, convert each of them into the U.S. dollar, which should typically trade near par.

The finance minister, however, in March restricted trading in the shares of Old Mutual and two other companies by making the stocks no longer fungible or regarded as being equal in value to those traded on other exchanges, in a bid to prevent outflows caused by the dual listings.

Despite the move, investors poured into Old Mutual, using it as a proxy to the U.S. dollar because of its offshore listings, pushing the Zimbabwe-listed stock up 90% since the beginning of May. The shares in Johannesburg and London were little changed, resulting in the implied rate doubling to 122 as the gap between the securities widened.

Zimbabwe’s benchmark industrial index has risen more than sevenfold this year, reaching a record on June 24, and giving the overall bourse a market value of about 229 billion Zimbabwean dollars ($3.6 billion). None of the stocks in the 57-member index has declined this year as Zimbabweans seek a haven from runaway price increases and the weaker currency, which has slumped to 63.7442 per U.S. dollar after a 25:1 peg put in place since March was abandoned.

Suspend Listing
Authorities now want to eliminate the OMIR before allowing any trading to resume on the Zimbabwe Stock Exchange, people familiar with the matter said, asking not to be identified because the talks are private. The OMIR was the focus of various meetings on Monday between members of Zimbabwe’s stockbrokers’ association, the stock exchange, the Securities and Exchange Commission and the Treasury, the people said.

Measures being considered to include suspending Old Mutual’s shares from the Harare-based bourse, having the securities traded only in dollars, or moving the listing to the Victoria Falls Stock Exchange, a market that will only trade in foreign currency once it opens later this year, the people said.
Nick Mangwana, the government’s spokesman, referred queries to the finance ministry. Several calls and text messages sent to Finance Minister Mthuli Ncube and central bank Governor John Mangudya seeking comment weren’t answered.

“There has not been any official communication from authorities in Zimbabwe to Old Mutual,” the Johannesburg-based company said in an email “We have asked our local subsidiary to reach out to our stakeholders in Zimbabwe to try and understand the circumstances around ZSE closure and other related matters.”

Discussions over the halting of trade on the stock exchange are ongoing and the outcome is still uncertain, SEC Chief Executive Officer Tafadzawa Chinamo said by phone. Zimbabwe Stock Exchange CEO Justin Bgoni said on Sunday that the bourse would wait for guidance from regulators.

In comments at a briefing after a cabinet meeting on Tuesday, the finance minister said that stockbrokers should assure their clients that their investments in the stock market are safe and that the bourse will reopen once investigations are complete. Bloomberg

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BUSINESS

Zimbabwe government suspends mobile money transactions

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Nick Mangwana

Zimbabwe government has, with immediate effect, suspended all monetary transactions on phone-based mobile money platforms to facilitate investigations that will lead to the arrest and prosecution of people responsible for sabotaging the economy.

In a statement this evening, Secretary for Information, Publicity and Broadcasting Services, Mr Nick Mangwana, said the measures will include the suspension of all trading on the Zimbabwe Stock Exchange.

The suspension will be in place until mobile money platforms have been reformed to their original purpose and when all the present phantom rates have converged into one “genuine rate that is determined by market forces under the foreign currency auction system which was launched by the Reserve Bank of Zimbabwe” on June 23. Operational modalities and details of the envisaged measures will be announced by the relevant monetary, regulatory and law enforcement authorise in the next few days.

The government will ensure that prudent measures are put in place to mitigate and prevent any collateral damage that the interventions may cause to the innocent public that was using the mobile money platforms. The Herald.

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