GOVERNMENT is looking at adding more stringent currency measures to rein in the runaway exchange rate amid an outcry over the promulgation of Statutory Instrument 127 which business says will fuel inflation and weaken the already fragile economy.
The instrument bars authorised dealers from submitting to the Reserve Bank of Zimbabwe (RBZ) an application for foreign currency or exchange control authority, or a return or any other document without exercising reasonable due diligence to verify the correctness of the information in or accompanying the application.
It also penalises a natural or juristic person who, being a seller of goods or services, issues to a buyer thereof, a receipt in Zimbabwe dollars for payment received in foreign currency, or records sales other than in the currency in which the sale was conducted.
Businesses who fail to open an account will also be penalised as the SI effectively amends the Bank Use Promotion Act (Chapter 24:24).
The penalty is equivalent to a single day’s banking of cash, based on the estimated average daily banking of cash in a continuous period of seven business days within 21 days preceding the issuance of the order.
Industry bodies Confederation of Zimbabwe Industries and the Zimbabwe National Chamber of Commerce have warned the new rules would fuel inflation and result in businesses being unbanked.
Economists also warned of mayhem in the market as a result of the SI and proposed an overhaul of the instrument immediately after consulting industry and ultimately re-dollarising.
Since its announcements, prices have gone up by about 40% in both local and foreign currencies as players hedge against potential exchange rate losses.
Some retailers are refusing to accept payment in foreign currency.
Information from highly-placed sources in the Treasury suggests more measures could be introduced to close loopholes while law enforcement agents will be heavily backed by authorities to police the neasures effectively.
“The political will is there and everything that is needed to make sure there is sanity will be provided,” said a highly placed source who requested anonymity. “The issue is that the honeymoon is over for errant players and we are now legally empowered to deal with bad apples.”
In an exclusive interview with the Zimbabwe Independent earlier this week, RBZ governor John Mangudya said the new SI was meant to create a level playing field and end rampant abuse of the foreign auction system.
He said it empowered the Financial Intelligence Unit (FIU) and law enforcement agents to penalise offenders more.
This comes after Finance minister Mthuli Ncube earlier this year told the Independent that a number of corporates were barred from participating on the foreign currency auction platform for violating regulations.
“Previously the FIU could only close accounts for 14 days but now it’s 90 days. When the accounts were reopened after 14 days, the offenders would promise to reform and start doing it all over again the next day,” Mangudya said.
“We were well aware of some companies that were abusing the auction system and the reality is that those businesses that are in the wrong are crying. They would just get money from the auction, but charge their prices at parallel market rates. This means they were not making profit from their product or service, but trading currencies using illegal black market rates which are a distortion.”
He said the auction system was efficient and operated within free market parameters.
“Every week bids are made and we average them to come up with the average, this is not controlled by anyone except the market itself,” he said.
Industry has complained over delays in accessing foreign currency after one pays for their winning bids at the auction. This has previously resulted in a huge backlog running into tens of millions of dollars.
However, the central bank has been working on clearing the backlog.
Mangudya said the auction system was perfect and delays were stemming from individual banks who had internal challenges.
“There are two specific banks which are having these delays and we have even stepped in to assist them to ensure allocations are paid timeously. To protect the market, all bids that have been paid for are honoured at the rates and on terms of the transaction,” the central bank chief said.