Bond notes in free fall as US$ premiums rise

Bond notes in free fall as US$ premiums rise

Source: Bond notes in free fall as US$ premiums rise – The Standard November 5, 2017

Premiums on the United States dollars have risen to 70% on the back of increased demand from companies sourcing foreign currency from the parallel market amid fears the continued depreciation of the bond note will quicken inflation.

BY TATIRA ZWINOIRA

At the start of October, premiums were averaging 40%.

Companies procure at least 25% of their foreign currency needs on the parallel market.

Since September, the Reserve Bank of Zimbabwe (RBZ) has mostly been allocating foreign currency to fuel and crude oil for cooking oil, leaving many companies in the lurch, forcing them to increasingly turn to the parallel market.

Ease of doing business consultant and economist Ashok Chakravarti said he believed that these people were the ones “fuelling the parallel market of late”.

“It is clear that we are facing severe shortages because if you look at the RBZ’s foreign exchange management system, they are trying to allocate more towards basic commodities, food, some of those items which are of essential necessity so that prices can remain relatively stable,” he said.

“So, the consequence is maybe for other uses there are all these people who are not part of the priority list and other people who have foreign exchange requirements.

“Maybe, it is possible that they are not getting anything as a result.

“As such, I suspect they are the ones who are fuelling the [parallel] market.

“…so that is my suspicion as to why you have all these rates going around.”

The rise in premiums comes as cash dealers have resurfaced in the streets having gone underground after government came up with legislation to stem the illegal foreign currency trade.

Standardbusiness witnessed several cash dealers back at the Fourth Street bus terminus opposite Roadport and Eastgate Mall in the central business district (CBD).

In the CBD, Fifth Street and the Eastgate Mall were once hubs to these dealers who often had some “makeshift offices”.

“My brother, these guys are now coming back because the police taskforce mandated with looking for these players has reduced the pressure on them.

“We are not seeing these plain-clothed cops as much as we used to those days when they were looking for those dealers,” said a taxi driver who operates at Roadport.

The plain-clothed police were part of a taskforce set up to arrest cash dealers after President Robert Mugabe enacted Statutory Instrument (SI) 122A of 2017 — Exchange Control (Amendment) Regulations 2017 (No 5) last month.

The SI criminalises illegal cash dealing and prescribes a 10-year jail for anyone caught doing it.

The increase in demand for cash has also led to cash premiums of 70% for bank transfers, while cash-to-cash transactions using bond notes attract a premium of between 40% and 50% for one to buy the dollar.

Last month, bank transfers attracted a 40% premium while cash-to-cash transactions using bond notes was at about 15 to 25%.

However, in light of shortages of the greenback, people are starting to use bond notes to purchase the South African rand, which has a premium of between 15% and 25%.

Using mobile transfer platforms like EcoCash now attracts a 25% premium to purchase cash while in some areas like Ruwa, EcoCash agents can charge nearly the same rates as those of bank transfers.

Last month, mobile money transfers attracted a 15% premium.

RBZ governor John Mangudya said the central bank was aware of the resurgence of these cash dealers.

“The RBZ continues to work with police to apprehend these parallel market dealers,” he said.

Mangudya said companies should utilise their real time gross settlement (RTGS) for productive sectors instead of transferring to dealers for cash, thus fuelling the parallel market.

“The situation has got to be contained. We need to use those RTGS balances, the money created in the country for more productive sectors such as the stock exchange, food, school and others,” he said.

“We need to use that money in more productive areas which reduces its use on the parallel market.

“We need to use those balances on productive products in the market so that we can absorb the money needed in the parallel market.
“For example, let us use RTGS balances to increase tobacco yields which will go towards the nostro account as we export the product and generate foreign currency.”

Though cash dealers are coming back, they are doing their trade more cautiously, playing duck and dive games with the police due to (SI) 122A of 2017.

For example, instead of holding huge wads of cash in their hands, they were now carrying the cash in small pouches or fanny packs.

Also, cash dealers are no longer freely announcing that they were selling cash as much as they used to.

At the Fourth Street bus terminus, some of the tactics used by these cash dealers involve not spending a long time in one spot, coming in the morning and leaving at around 2pm.

The rise in cash dealers has also meant the return of cash agents who supply them with cash.

One of the taxi drivers at the Fourth Street bus terminus showed Standardbusiness a silver Volvo car dropping off cash to some cash dealers.

On some days the cash agent is said to come driving a blue Toyota Corolla.

According to several sources at the terminus, the agent affiliates himself with the ruling party.

At the Eastgate Mall, Standardbusiness found some of these dealers were also returning to the area but unlike their Fourth Street bus terminus counterparts, they were coming in the afternoon and working late into the evening.

Those who come in the afternoon are mainly the cash agents who park their cars along Sam Nunjoma Street at Eastgate Mall, moving every 30 minutes to an hour.

These tactics are part of the new modus operandi for these cash dealers in carrying out their trade at the Fourth Street bus terminus and Eastgate Mall.

International Monetary Fund African Department director Abebe Aemro Selassie warned last week that any further increase in premiums would quicken inflation into hyperinflationary territory.

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