Ncube ignores elephant in the room: Currency 

Source: Ncube ignores elephant in the room: Currency – The Zimbabwe Independent November 23, 2018

FINANCE minister Mthuli Ncube yesterday avoided the volatile currency reform issue, insisting the bond note and RTGS are still at par with the US dollar during his reforms-driven 2019 budget statement presentation in parliament.

By Melody Chikono

Ncube — who got his fingers scotched soon after taking up his new job when he attempted to officially re-dollarise the economy, demonitise bond notes and later bring back the defunct local currency — did not address the elephant in the room: the currency crisis. He took a cautious approach which is likely to leave the thriving parallel market booming as arbitrage opportunities remain and expand.

“The multi-currency system remains in place, with the US dollar being the currency of reference, out of the currency basket. As previously indicated, the country is still using the multi-currency system, which was put in place by government in 2009. From this multi-currency basket, the US dollar is our reference currency, also applying to the 2019 National Budget,” he said.

“Government commits to preserving the value of money balances on the current rate of exchange of 1:1, in order to protect people’s savings and balance sheets. Going forward, the objective is to build foreign reserves and credit lines, as part of the strategy for the value preservation objective.”

The value preservation arrangement is hinged on consistent implementation of prudent fiscal and monetary policies, as well as disciplined market conduct by all economic agents as espoused in the Transitional Stabilisation Programme, he said.

Ncube said his budget was consolidating the value preservation roadmap through macro-fiscal consolidation measures.
Prior to his appointment, Ncube made it clear that he wanted major currency reforms, adding bonds notes should go by the end of the year.

The minister spoke about macro-economic fundamentals, fiscal and monetary policies reforms, budgetary issues, debt, budget deficit, current account deficit, clearing of arrears with international financial institutions to secure new funding, lines of credit and currency reforms.

However, to give him a soft-landing, fiscal and monetary authorities told Ncube that his three proposals on currency reform — dollarisation, joining the Rand Monetary Area, Common Monetary Area or the Multilateral Monetary Area or re-introducing the Zimbabwean dollar — were dead on arrival.

Although his ideas, eloquence and clarity were widely welcome, fiscal and monetary authorities, and business leaders, as well as the market were rattled by his pronouncements on currency issues.

His remarks that the bonds notes would be abolished in December sent the rate of the quasi-currency going through a massive depreciation against the United States dollar on the parallel market.

In his statement yesterday, the only notable reform measure he came up with was on the allocation of foreign currency.

Under the new rules, government will appoint an interim Foreign Currency Allocation Committee, with broader representation.

This will, however, be in the context of gradually exiting from exchange controls to a more market-based mechanism that promotes efficiency in foreign currency allocation.