Our ever-changing and inconstant policies at RBZ doing more damage than good to the economy

 

By Lawrence Musekiwa

As Winston Churchill said “If you destroy a free market you create a black market. If you make 10 000 regulations you destroy all respect for the law.”

The Reserve Bank of Zimbabwe needs reforms and only such reforms will redeem the suffering of Zimbabweans.

The RBZ has been inconsistent for a while and it seems they won’t stop anytime soon.

The Treasury seems to be under a lot of confusion, it started in 2016 when the administration there introduced bond notes and purported that they were at par with the American dollar.

The confusion went further when the same administration alleged that the exchange rates were liberalized in February 2019 after they said that the decade long dollarization period was over.

Bad money drives out good money

As commonly said “Bad money drives out good money” the USD was never easy to get especially to local companies which import key inputs in foreign markets.

From that moment too much regulations were imposed on official forex market like the minimum withdrawals and use of the forex.

This led to the emergence of black market since the official bank exchange rates didn’t reflect what market players needed.

If you are not served well by the interbank the alternative is quite close to you also and it’s the black market.

Surely no one would go to the interbank which rewards you 50% of what you ought to receive in the parallel market.

Around the end of 2019 the parallel markets were quoting around RTGS $22-25 to the American dollar.

From Samora Machel Avenue toNelson Mandela Avenue

In 2020 due to high demand of the USD the RTGS dollar by local businesses and for hedging against a galloping inflation of just under 1000%, the local currency by March had reached RTGS $44 to the USD.

The folks at RBZ in trying to bring down the parallel market rates went on to introduce a Reuters trading system which some experts labeled as just moving currency traders from Samora Machel Avenue to Nelson Mandela Avenue which meant that the Treasury was not solving anything since they explicitly stated that they would intervene and monitor the market.

Surprisingly the Reuters system didn’t last even two weeks another shocker was announced that those with free funds can use them for domestic transactions, further more they fixed the interbank rate to USD1:RTGS $25.

But of all the decisions why fix the exchange rate? This automatically will make the RTSGS dollar overvalued and the rates on parallel markets will continuously eschew the domestic currency. Imagine all these policy changes, inconsistencies and confusion at the Treasury.

Straight policies, fewer regulations

All this mess started by the introduction of the local currency which saw the inflation rate shooting up to above 700%.

The decision to introduce the Zimbabwean Dollar was not well thought of. For there to be stability in an economy there should be straight forward policies and fewer regulations.

The RBZ should focus on the stabilizing the ZWL rather than trying to make it look stronger when its fundamentals are pointing the opposite.

From the introduction of the bond note in 2016 the Treasury was trying by all means trying to overvalue the local currency instead of allowing the market to decide the equilibrium value.

What’s more surprising is that they have not changed their ways of overvaluing the ZWL it recently got fixed at RTGS $25 per US dollar.

Manipulate the market

Better let the ZWL/USD exchange rate depreciate to 100USD1 (assuming reasonable money supply growth) than to intervene and manipulate the market.

Evidently during multi-currency the country witnessed low inflation and high foreign direct Investment.

All this was because of certainty in policy implementation and consistency in applying of policies.

Allowing dollarization today would also produce the same fruits. By this there will be stability in terms of inflation and other economic indicators, since all evidence point out that all these inconsistencies started to materialize after the ban on use of multicurrency.

Most importantly the Treasury should be independent. It should make autonomous decisions and stay away from making politically motivated decisions for it to gain the trust among economic participants and to eradicate the black market.

Lawrence Musekiwa an Accounting student at University of Zimbabwe. He can be contacted on email on lawrencemsekiwa110@gmail.com. The views expressed do not necessarily represent the Editorial policy of www.zimbabwedigitalnews.com

 

 

 

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