The parallel market is undoubtedly the go-to platform for most people looking to convert some money. This obviously stems from how favourable the parallel exchange rates usually are as opposed to the interbank market. After all, foreign and local currencies (i.e. cash) are both not readily available on the interbank market. We all know that the central bank indicated that they will soon be introducing ZWL$2 coins and ZWL$5 notes in a bid to address cash shortages. In this article, I will touch on some interesting developments that have been happening lately and also some insights that I have drawn from what is happening on the parallel market.
Cash Out Rates Plummet To As Low As 25%
This past Saturday some reports emerged citing that cash premiums had fallen sharply in some parts of Harare. It was said that this was in response to the recent indication by the central bank that they will be injecting ZWL$1 billion into circulation. So some ads by Ecocash agents circulating on social media could be seen highlighting cash rates of as low as 25%. When I asked around Masvingo on the same day, it was also the case that cash out rates had gone down – but not to as low as 25%. As at yesterday in Masvingo cash out rates were at 50%. Anyways, it suffices to say that exchange rates have somewhat gone down in general. Are we going to see them going down even further? The remains to be seen especially since it is now official that the new ZWL$2 coins are going into circulation starting on the 12th of this month. By the way, the incoming coins and notes will be at par with the bond coins and notes plus they will be circulating both.
What Is This Impending Injection Of New Notes And Coins Meant To Achieve?
Well, cash has been quite scarce yet highly on-demand and that has led to a scenario where premiums have to be placed on it. Thus the injection of these notes and coins will lead to a decrease in premiums charged on the parallel market. Ultimately that will culminate in prices becoming almost similar whether it is cash or mobile money. Parity in these regards has only been happening in big supermarkets like OK or Pick ‘n Pay. As for small shops and the vast majority of other businesses, there has been a huge gap between cash and mobile money prices. All this has been fuelled by placing premiums on cash on the parallel market. So the central bank is hoping the injection of new notes and coins will increase cash supply thus eliminating the need for premiums to be placed on it. I would say all this is at best hypothetical because things can either turn out that way or otherwise.
Is It Going To Work?
Hopefully, it will but there is a lot to consider that makes that hope faint. The introduction of these new notes and coins might provide relief for only a short time. It will only be a matter of time before people start hoarding the cash then it becomes scarce again. The other issue of concern is that the central bank is complicit in the dealings of the parallel market. There is no question about how most money changers have central bank connections that send them ridiculously high amounts of mobile money so that they buy US dollars. This is so commonplace and only goes to show you that the central bank might not be as sincere when it comes to addressing the plight of the people. It is also common knowledge that printing money usually pushes inflation upwards. Like I said, let us wait and see how things will unfold when both the ZWL$2 coins and ZWL$5 notes are now in circulation. One of the interesting things to see how it will unfold pertains to the bond notes and coins and these incoming new notes and coins. As much as they being said to be at par, are they going to sustainably be treated as equal? Will we not eventually see the bond being rated against the new notes and coins? I believe these are valid questions because history has a lot to tell us.
The Real Solution Lies In Production
The irony in introducing these new coins and notes is that it is a way of dealing with symptoms. The fundamental issues are not being addressed. For starters, we have no business using bond notes and coins – by now they should have been no more. Anyways, the real issue is about stimulating or reviving local industries. If this is done we can boost our export levels and get to get more foreign currency earnings from those exports. The moment the demand for foreign currency dwindles then the parallel market gets significantly weakened. So it is important and must be addressed, the issue of production. We can discuss and debate on several other issues but the problems this nation is faced with are primarily due to low production levels.
