AS the exchange rate continues its sharp rise, sparking a massive increase in prices of basic commodities, the government has set up a “currency stabilisation taskforce” among a cocktail of measures.
The exchange rate has moved to as high as ZW$40 to the greenback from around ZW$29 to the United States dollar in a space of less than a week. The spike has resulted in a new wave of price increases of basic commodities such as bread and cooking oil.
At a press briefing today, Finance minister Mthuli Ncube announced the formation of a the Currency Stabilisation Taskforce spearheaded by his ministry and the Reserve Bank of Zimbabwe and which will include members of the Monetary Policy Committee and Presidential Advisory Council. The new taskforce will be chaired by Ncube.
“The taskforce will be chaired by the minister of Finance and will meet at least once a week to review the conditions in the markets, monitor the behaviour of key variables such as the exchange rate and inflation,” Ncube said. “The taskforce will put in place additional policy measures where necessary.”
Among the measures announced by the Treasury boss are the introduction of a “managed Floating Exchange Rate System” in which an electronic forex trading platform based on the Reuters system has been put in place with immediate effect.
“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,” Ncube said. “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 trading platform will generate a daily exchange in an A.M. and P.M. fix, adding that the trading rules for the functioning of the platform have been agreed to by commercial banks
“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 the authorised dealers,” Ncube revealed.
He said bureaux de change will be liberalised within the rules of the central bank, adding that there will be no limit on its ability to finance importers. Bureaux, he said, will have a minimum float of US$20 000.
Ncube said the central bank will provide liquidity to stabilise the exchange rate where necessary. He pointed out that the central bank will also release forex into the market based on a well-defined forex stabilisation policy, maintain a fully operationalised Reuters trading desk, liberalise use of free funds for importation of goods and services as well as gradually discontinuing the use of letters of credit in favour of accessing forex on the interbank platform. He said the central bank will terminate the gold incentive facility once the Reuters System becomes fully functional and a unified exchange rate is established.
Ncube said the central bank will also introduce minimum interest rates on all deposits, including trust accounts underpinning mobile banking wallets, to incentivise savings and encourage holding of the domestic currency.
The treasury boss said government will introduce stiffer penalties in relation to curbing trade on the parallel market as well as crimes relating to foreign exchange and financial fraud.
“Government will be reviewing all the laws and institutional framework in order to bring them in line with international best practices and, more importantly, monitor the effectiveness of institutions charged with implementing the laws,” Ncube said
He said measures will be taken to curb the abuse of mobile money platforms by placing limits on daily bulk payer transactions as well as ensuring compliance with the 2% tax on bulk transactions.
Ncube said the government will levy all taxes, duties and other government fees—some of which are being currently charged in forex—in local currency in “a phased but time-bound manner”.