USD to remain in use for five years

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Harare (New Ziana)- The continued use of the US dollar for the next five years will be legislated to entrench confidence in the local market, Finance and Economic Development Minister Professor Mthuli Ncube said on Monday.

On top of that, the use of the inter-bank market exchange rate in all economic transactions will also be legislated as the government seeks to rein in the parallel market bench-marking of prices.

Despite repeated pronouncements that the USD would continue to be used alongside the local currency, there had been uncertainty over how long the system would be in place, as such the new legislation seeks to address the uncertainty.

“To eliminate speculation and arbitrage based on this issue, the Government has decided to embed the multi-currency system and the continued use of the US dollar into law for a period of 5 years,” he said while announcing a package of measures to tame inflation and to stabilise the exchange rate.

“We have already announced that the use of the US dollar will continue over the National Development Strategy 1 period. l want to provide assurances to the market that there is no reversal of policy around this issue.”

Adding on, Permanent secretary in the Ministry, George Guvamatanga said: “Another thing that you are going to notice from the statutory instrument is that we are also saying that if you are going to go to the banks and borrow in US dollars, you will have to pay back in US dollars because banks were also much very reluctant to lend in US dollars because they were worried that you could borrow today in US dollars and two or three years from now you will come and want to pay in local currency, thereby affecting their balance sheets, so it is another measure that we are entrenching in the legislative framework. We did not have that in the previous framework that we had.”

Asked whether the new legislation would not kill the local currency, Guvamatanga said the government was targeting to maintain a 70 to 30 percent ratio of the volume of Zim dollar versus US dollar in the market.

“Up to 70 percent of the transactions in the national payment system are still in the local currency and only 30 percent is in US dollars. l think the preference that is there, contrary to popular belief, still indicates that there is a preference for transacting in Zim dollars. This is also even reflected in the revenue of government in the taxes that we collect, we also collect them in exactly the same ratios where 70 percent of our taxes are collected in the local currency and only about 30 percent is in US dollar, so even when we talk about dollarisation, it is very clear that we do not have enough US dollars circulating in the economy to dollarise because the majority of corporates are largely still trading in the local currency.”

On the inter-bank market exchange rate, Ncube said its utilisation in all economic transactions was now mandatory by law.

“While economic agents are free to price their goods in US dollars or Zimbabwe dollars, and there are no price controls, the equivalence of US dollar prices and Zimbabwe dollar prices for a commodity should be strictly based on the current inter-bank exchange rate as determined by the Willing Buyer Willing Seller rate. No discounting of prices for payments made in US dollars shall be allowed and the law provides for strict criminal and civil penalties including US dollar-based fines, suspension or cancellation of business/trading licences for offenders. Amongst other penalties.”

Ncube also announced measures to stabilise the price of fuel, maize meal and bread.

On fuel, he said the government had completely removed the government fuel levy on diesel while that on petrol had been reduced to US4.7 cents per litre.

“This action prevented the price of fuel from breaching the USD2.00 per litre mark,” he said.

Ncube said blending was also helping keep the cost of fuel down.

“Without blending, the price of fuel will be higher, so this is to your advantage and benefit to the public.”
New Ziana

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