It’s official. The exchange rate between the US Dollar and the local RTGS Dollar is 1:2.5. After the announcement of the Monetary Policy Statement (MPS) two days ago, many were immediately keen to know what the exchange rate would be. Even the parallel market paused for a day, awaiting some sort of direction from the authorities. That wait is over now.
Breakfast meeting revelations
Speaking at a breakfast meeting to review the MPS this morning, Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya revealed that the interbank exchange rate will open at 1:2.5 as agreed with forex dealers at banks. This rate is considerably low compared to the parallel market where it is hovering around 1:4. Dr Mangudya suggests that this is a result of the risk premium that comes with trading on the parallel market. The risk is a 10-year jail term. He said foreign lines of credit will be secured and used to support the interbank exchange arrangement since demand for forex is likely to exceed supply.
Asked about when the discovery that the 1:1 was no longer justifiable, the RBZ Governor said they had discovered this in October 2018 when the markets ran away and inflation set in. In public circles, the parity between the US Dollar and the local bond note/RTGS had long been questioned. Since the banks could not formally trade in forex, businesses and individuals relied on the parallel market for their foreign currency requirements. Those who were lucky got their allocations from the RBZ at subsidised rates. With the latest move, businesses will now approach banks when they need forex but individuals may not always have the relevant paperwork to do so. As a result, the parallel market may not disappear immediately.
Steward Bank is one of the banks that have already made the necessary adjustments by including RTGS Dollar as a currency trading at 2.5 against the US Dollar. Their selling rate is 2.5625. It is however not clear whether they do have the hard currency to transact yet. And, availability of forex at banks is a critical issue in this whole equation. If the forex is not there, even the businesses will be forced to revert to the illegal parallel market. The lack of trust that exists between the central bank and citizens is also another factor. Assurances that things are going to get better with time seem to always be met with some degree of scepticism. People have been let down before, some lost all their pensions and savings as government chopped and changed its policies in the past.
Now that the rate is set, the market will tell us what to do. Businesses will operate in a more relaxed environment, with a little bit of certainty. That these measures will take us to the promised land is not guaranteed, but we have to go somewhere, businesses should strive to remain afloat.