The Reserve Bank of Zimbabwe yesterday published a press release with the outcomes of the meeting of its Monetary Policy Committee (MPC) held on the 22nd of May 2020. The statement contains reiteration of the intention to employ an electronic real-time trading system in the interbank foreign currency market, a further cut of the statutory reserve ratio for banks and the reinstatement of the previously suspended compulsory export proceeds liquidation for exporters.
The Reserve Bank through its Financial Intelligence Unit has been doing a lot of work during the lockdown to fight what they perceive as conduits of the parallel foreign currency market. They have moved against mobile money transfer agents on both Ecocash and One Money, Steward Bank as trust account holders for Ecocash agents, both the Ecocash and Cassava CEOs, money transfer platform Zipit and most recently limiting internal bank transfers being limited to 2 per day. The success of these measures against the parallel market has been scattered. Now the MPC brings up talk of the Reuters based electronic trading system they intended to implement but never got around to. At every turn, they have spoken of a liberal exchange rate they have turned around and done the opposite. Zimbabweans lack of excitement about this latest announcement should not be a surprise.
The Statutory reserve ratio, which was cut before, was further cut to 2.5%. A statutory reserve ratio is the percentage of their deposits a bank is required to keep with them to prevent a bunk run crippling the bank, not a problem in our cash deprived economy but it does help keep banks liquid in transactions with other banks. By reducing this the RBZ has allowed banks to lend more money to businesses which are in dire need of support after lockdown regulations dented both business operations and demand.
The biggest talking point is the reinstatement of 30 days “use it or lose it” policy on foreign currency held in Nostro accounts by exporters. This forces exporters with balances held for 30 days to sell their foreign currency at the current fixed interbank rate of 25 for a US dollar when the parallel market, despite attacks on its conduits, has marched towards 80 for a single US dollar for bulk purchases. We noted during lockdown that the motivation for allowing the use of foreign currency was to give the government access to foreign and once again the same motivation seems to be behind this move.
While Zimbabweans grapple with many monetary problems including foreign currency shortages, cash shortages and transacting difficulties the Reserve Bank has busied itself with constricting the methods of transacting. The parallel market rate is a problem for them, they would like to see it stamped out but parallel markets occur when markets fail. Instead of reading the signs and correcting market inefficiencies, more energy will be spent on cosmetics while the exchange pushes to 100.