Harare (New Ziana) – The government on Wednesday announced the immediate adoption of a new electronic foreign currency trading platform, dubbed the Reuters system, as part of measures to stabilise the foreign exchange market and to give impetus to the currency reforms being undertaken.
Government banned the use of multi-currencies, dominated by the US dollar, in the second half of last year, and reinstated the Zimbabwe dollar as the sole legal tender.
The local currency, however, has lost considerable value against all major currencies since its return, in an economy again ravaged by high inflation.
On introduction, the local dollar traded at 2.5 to the greenback, but now trades at around US$1: ZWL$18 on the official inter-bank market.
It is even weaker on unofficial markets, where the rates have spiked in recent days up to US$1: ZWL$35.
In response to the recent spike, Finance and Economic Development Minister Mthuli Ncube said to stabilise the exchange rate and in turn lower inflation, government had decided to implement a holistic package of key policy measures.
“Zimbabwe has had no transparent and effective foreign exchange trading platform for a long time. Consequently official rates have not been effectively determined while a thriving parallel market has developed. To correct this anomaly, an electronic forex trading platform based on the Reuters system is being immediately put in place. This platform will allow foreign exchange to be traded freely amongst the banks and permit a true market exchange rate to be determined,” he said.
“The Bureaux de Change will also participate on this platform through their authorised dealers. The trading rules of the Bureaux de Change are being liberalised so that they can conduct all wider range of transactions.”
Ncube added: “The trading rules for the functioning of this market have already been agreed to. Banks will be the market makers. The Reuters system will generate a daily exchange rate in an A.M and P.M fix. Banks will charge bureaux very thin margins on transactions which are routed through them as authorised dealers.”
To ensure success of the new system, a currency stabilisation task-force has been set up and will meet once a week to review market conditions, behaviour and to ensure that the stabilisation measures announced are being implemented.
The task force, to be chaired by Ncube, will include members of the RBZ Monetary Policy Committee and the Presidential Advisory Council.
Ncube said the Reserve Bank of Zimbabwe would continue playing a significant role in the market by providing liquidity, where necessary, to stabilise the exchange rate.
He said bureaux de changes will be immediately liberalised in accordance with RBZ rules, required to maintain a minimum float of US$ 20 000 while there will be no limits on their ability to finance importers.
“Bureaux will be market takers, they can trade foreign exchange at plus or minus five percent of daily foreign currency fix,” he said.
“Bureaux shall have access to physical cash available from the RBZ subject to daily limits. Cash purchases can be paid for in ZWL at 1:1 or USD at daily exchange rate. All bureaux requirements shall be demand driven. Bureaux can use excess USD to purchase ZWL cash from RBZ.”
To support the successful implementation of the new foreign exchange management system, Ncube also announced measures relating to money supply, liquidity management and interest rates.
He said these measures were part of the de-dollarization road map and would be introduced in a phased manner.
One of the crucial measures, he said, was maintaining a cash budgeting framework to minimise shocks arising from budget deficits.
“In line with this goal, it should be noted that government has a cash surplus of ZWL $3 billion,” he said.
“The Ministry of Finance will also project revenue and expenditure for the full financial year and announce its TB issuance calendar, if such financing is required. Ensure that all TB issuance for open market operations will be approved by the monetary policy committee.”
Ncube said government would also ensure that large ZWL payments were not bunched so that they do not disrupt the foreign exchange market.
To underpin the use of the ZWL, government would, over-time, implement the payment of all taxes, duties, fees and other government charges in local currency.
To further strengthen the new policy measures, the RBZ will terminate the gold incentive facility once the Reuters system becomes fully functional and introduce minimum interest rates on all deposits, including Trust accounts to incentivise savings and encourage holding of the domestic currency.
New Ziana
