Foreign currency reserves rise to US$500m

Source: Foreign currency reserves rise to US$500m | The Sunday Mail

Dr John Mushayavanhu

Emmanuel Kafe

FOREIGN CURRENCY RESERVES supporting Zimbabwe Gold (ZiG) have increased to over US$500 million, about three times the total ZiG in circulation, a development expected to enhance currency and price stability.

The ZiG currency has performed strongly in recent weeks since the September devaluation, appreciating from US$1:ZiG27,4 at the end of October to US$1:ZiG25,6 by Friday.

The appreciation signals reduced pressure on the formal foreign exchange market and is anticipated to boost the purchasing power of consumers.

As of last week, the Reserve Bank of Zimbabwe (RBZ) held foreign currency reserves amounting to US$509 million, exceeding the total bank deposits in the domestic currency, which are around ZiG12 billion.

Strengthening of the local unit reflects the effects of recent monetary policy interventions by the RBZ aimed at curbing exchange rate volatility and inflationary pressures.

RBZ Governor Dr John Mushayavanhu told The Sunday Mail that the strengthening of ZiG was partly due to recent policy initiatives, including increasing the bank policy rate from 20 percent to 35 percent.

Additionally, the statutory reserve requirements for demand and call deposits in both the local and foreign currencies were standardised at 30 percent, while savings and time deposits were set at 15 percent.

“The combined effect of these measures has significantly reduced ZiG liquidity in the market,” said Dr Mushayavanhu.

“The exchange rate has also strengthened, benefitting from increased foreign currency receipts.”

The country’s foreign currency receipts rose by 18 percent during the nine months to September compared to the same period last year.

“The ZiG:US dollar exchange rate has, therefore, been appreciating under the willing-buyer, willing-seller arrangement, in line with market fundamentals, reflecting the supply and demand dynamics of foreign currency on the interbank market,” he added.

“The tight ZiG liquidity conditions amid a tight monetary policy stance in the market have seen increased willingness by economic agents to liquidate their foreign currency positions, thereby creating demand for ZiG.

“These conditions have largely contributed to the appreciation of the currency.

“Currently, the total reserve money in local currency as of November 6, 2024 is about ZiG3,4 billion, which is about US$129 million, against foreign currency reserves of US$509 million.”

This, he said, implies more than three times cover of local currency reserve money.

“The Reserve Bank’s total foreign currency reserve holdings of more than US$500 million as at November 1, 2024 are also more than the total bank deposits in the domestic currency of about ZiG12 billion — giving an implied exchange rate of around US$1:ZiG24.

“The Reserve Bank has, therefore, since April 5, 2024, consistently held more than sufficient reserves to back the ZiG currency to ensure its stability.”

He said the Reserve Bank will continue to regularly intervene in the market by utilising 50 percent of the 25 percent export surrender requirements.

This intervention, he added, will support smooth foreign exchange market operations, meet demand for legitimate foreign payments and strategically strengthen reserve holdings to sustain ZiG stability.

“The Reserve Bank will continue to make strategic foreign currency interventions to ensure that there is seamless settlement of foreign payments in the interbank foreign exchange market,” Dr Mushayavanhu said.

“The full backing of the local currency reserve money ensures that at each point the Reserve Bank has adequate foreign currency reserves to intervene in the market and ensure the stability of the local currency. Currently, the Reserve Bank reserves have topped US$500 million, which implies more than three times the cover of reserve money.”