No prospects of return to a multi-currency regime

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The multi-currency regime serves well for Zimbabwe going forward.

Melody Chikono

ZIMBABWE’S central bank deputy governor Jesimen Chipika says the nation is grappling with symptomatic challenges instead of tackling structural problems in the economy, and has vowed that the multi-currency regime will not comeback.

Addressing guests at the Zimbabwe Independent’s Banks & Banking Survey awards-presentation ceremony in Harare last week on Thursday, Chipika made it clear that there were no prospects of Zimbabwe returning to the United States dollar.

“We are grappling as a nation to separate the structural challenges versus the symptomatic challenges and a lot of times it is the symptomatic challenges that have appeared more frequent than the structural,” she said.

“We should go back to addressing the structural challenges and I would want to agree with those of you that keep on saying let’s go back to production. The real economy is on production. Those are the structural issues of the economy.”

Chipika said prices of basic commodities were no longer rising at a brisk pace on a month-on-month basis. The pronouncement drew murmurs of disapproval from the guests.

Zimbabwe’s official year-on-year inflation rate was last recorded at 300% in August and computed at 353% in September 2019.

Just last week, the Public Accountants and Auditors Board (PAAB) advised that there was broad consensus within the accounting and auditing professions to apply International Accounting Standard 29 (Financial Reporting in Hyperinflationary Economies), when reporting on accounts in Zimbabwe.

Chipika said the introduction of the Zimdollar has seen a sharp decline in parallel market activities and an increase in the demand for the local currency.

On the untimely introduction of the Zimbabwean dollar and the outlawing of the US dollar as legal tender in June, she said there was no way an inter-bank exchange rate was going to coexist with a multi-currency regime.

“The opportunities for arbitrage were totally out of control. This led us to the June 24 decision. Multi-currency was no longer working in our country. We had to go back to the monocurrency. The Zimdollar helped hold other worries of post-dollarisation,” she said.

Chipika said the US dollar, a strong currency, made local production uncompetitive.The Zimdollar’s introduction has also assisted companies to re-enter the export market, she added.

Chipika said the monocurrency was the new normal for Zimbabwe although it might not be perfect.

“We have seen from analysis that it was very difficult for exporters when we had a 1:1 parity policy. The exporters are our lifeblood,” she said.
“Remember the bond notes were in produce as an incentive.”

Chipika said exporters were failing to enter other markets as they were producing in a high-value currency.

“The Zimbabwe dollar may not be perfect but we are getting there,” Chipika said.

“We have seen the reduced trading of foreign currency on the black market and we are seeing stronger demand for the local currency.”

She said this comes at a time foreign currency receipts plunged 24% to US$2,58 billion on the forts half of the year as the capital-starved southern African country battles to lure investment. Total foreign exchange receipts included exports, international remittances, offshore loan proceeds, income receipts and foreign investment proceeds for the period January to June 2019.

The major foreign currency earners, which include mining, whose earnings plunged by 19% to US$1,24 billion from US$1,54 billion and agriculture (including horticulture and tobacco) dropped 9,9% to US$318,2 million from US$353 million.

In the midst of the various economic turmoils, Chipika said the central bank’s monetary policy stance going forward will be premised on confidence building to minimise adverse inflation expectations; credit enhancing policies to support domestic production and productivity, necessary to guarantee stability of the local currency.

“Savings mobilisation to support domestic production, macro-prudential policies to safeguard the health of the financial sector and general macro-economic performance; and responses to technological innovations, climate change and broader sustainability issues to enhance survival of financial institutions under the fourth industrial revolution,” she said.

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