We have clocked just over two months of CPOVID-19 induced lockdown in Zimbabwe and the team at the Reserve bank of Zimbabwe continue to fight to be seen as the hardest working organisation in the land. This takes us back to memories of 2008 era Zimbabwe where the Reserve Bank through then Governor Gideon Gono was the most active arm of the government. Current Governor Dr John Mangudya recently announced that the Bank will use ambush raids to go after parallel market dealers.
The irony is beyond laughable. To announce an ambush surely defeats the logic of an ambush. An ambush by definition is a surprise attack by people lying in wait in a concealed position. The announcement of such a plan takes away any element of surprise, something which is an important part of the definition of an ambush. So what is the governor really playing at here? Let’s have a look at the impact to understand.
Some sections of the media such as Zimpapers owned ZTN yesterday reported that the parallel market exchange rates had tumbled to as low as 56 Zimbabwean dollars for a single US dollar for electronic transactions. This just after scaling highs of 73 for the same just last week. The RBZ has been on a campaign to throttle the parallel market going as far as fighting Ecocash, Cassava, Steward Bank and Zimswitch’s ZIPIT platform. All these efforts were aimed at curtailing the abuse of these conduits of money in the parallel market. More seasoned parallel market rate publishers maintain that the exchange is still hanging around 75. If the ZTN reports are to be treated as true it is in fact buyers of foreign currency who benefit from a cheaper greenback. Lest we forget the bulk of foreign currency purchases are for the preservation of the value of money earned.
There is a checkered past when it comes to the perceived motivations of the Reserve Bank when it comes to monitoring the exchange rate with Senior officials in the Reserve Bank itself being accused and investigated though nothing materialised from the allegations. The government has also been rumoured to go into the parallel market from time to time as the market manages to adequately supply buyers. These are certainly great times for buyers so perhaps a few buyers will be grateful for the move to announce the ambush and scare dealers.
The reality, however, is that conduits and money changers are not the cause but a mere symptom an underlying problem of calamitous money supply growth. Zimbabwe’s broad money supply grew by a whopping 250% in 2019. As long as there is money supply growth at that level inflation and exchange rate depreciation are guaranteed. With the recent revelation that COVID-19 bailout funds will in part be financed by quantitative easing (printing money) and the impending $20 notes, we should reasonably expect further money supply growth. Inflation is currently on the rampage although ZimStat took an eternity to report a surprisingly slowed down inflation rate for April.