RBZ says committed to ZiG’s long-term stability

Source: The Herald – Breaking news.

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 Dr Mushayavanhu

Business Reporter

RESERVE Bank of Zimbabwe (RBZ) Governor, Dr John Mushayavanhu, has reiterated the bank’s commitment to measures that guarantee the success of the Zimbabwe Gold (ZiG) currency.

Zimbabwe introduced the currency in April last year after a long struggle with exchange rate volatility and rampant inflation.

Part of the measures adopted by the central bank is the tight monetary policy stance, backed by a relatively high interest rate regime to discourage speculative borrowing.

The RBZ governor said the central bank was working to ensure durable ZiG stability and to make the currency the cornerstone of the economy.

Dr Mushayavanhu said this during a meeting with the Tourism Business Council of Zimbabwe (TBCZ) last week, during which he defended key monetary policy measures introduced by the bank.

The central bank chief emphasised that de-dollarisation remained on track to meet the 2030 target of reverting to a domestic mono-currency regime.

Authorities, business leaders and economists agree that the US dollar-denominated currency regime is not sustainable, given the overly strong currency, which reduces the competitiveness of local products on the global market.

The limited supply of US dollars also limits the central bank’s capacity to use its monetary policy tools to influence economic dynamics in the country.

Among the measures to enhance confidence and performance of the ZiG, the central bank said economic agents were free to charge prices not fixed to the official exchange rate.

“The market is free to price their goods and services at whatever USD to ZiG rate they prefer without being limited to using the official RBZ exchange rate,” he assured business leaders.

This effectively liberalises the pricing system, allowing companies to adopt exchange rates that reflect market dynamics.

He indicated that the Financial Intelligence Unit would not penalise businesses for not using pricing models fixed to the official exchange rate, for as long as the pricing is with reasonable margins.

Crucially, the governor highlighted that economic agents attempting to exploit the market by using ridiculous exchange rates would soon price themselves out of competition.

“The ZiG to USD rate is firming up,” he declared, stressing this as a clear indication that confidence in the local currency remains the focus of the central bank’s mandate.

His deputy Dr Innocent Matshe said the realistic exchange rate, based on economic fundamentals, should be US$1/ZiG22, a level that authorities expect the market to gravitate towards.

Despite appeals from the tourism sector for special exemptions on export surrender, Dr Mushayavanhu made it unequivocally clear that the industry would not receive preferential treatment.

“Tourism and hospitality are not exceptions,” he stated.

He said the sector should align with broader monetary policy provisions by adhering to the recently announced 30 percent surrender requirement for all exporters.

The governor further pointed out that a reduced liquidation threshold had the potential unintended consequence of emboldening his resolve to accelerate de-dollarisation.

“Asking for reduced liquidation only persuades me to accelerate de-dollarisation and increase export proceeds surrender percentages,” Dr Mushayavanhu cautioned.

The central bank chief’s pronouncement is a clear message to other businesses hoping for concessions that the monetary authorities will not grant any special favours on export surrender.

One of the most contentious topics in Zimbabwe’s monetary landscape has been the role of the ZiG in fuel transactions. While some businesses pushed for mandatory ZiG fuel transactions, the Governor firmly rejected the idea.

“There are adequate use case scenarios for ZiG at the moment,” he stated, adding that fuel sellers will naturally transition to local currency at their own pace.

Dr Mushayavanhu revealed that some fuel traders had already approached the RBZ, offering to sell fuel in ZiG to finance their local obligations.

Over time, the governor opined, the fuel dealers would voluntarily sell the commodity in the domestic currency.

“We do not want to go back to long queues and fuel shortages,” he stressed, signalling that policy decisions will be made with economic stability in mind.

He also rejected overtures for preferential treatment to forex for capital projects.  Dr Mushayavanhu also dismissed concerns about the US dollar funding gap in the market.

“Local banks have access to foreign lines of credit,” he insisted, adding that tourism businesses should have no difficulty securing such financing facilities.

However, tourism business leaders at the meeting disagreed with him.

According to the industry players, banks may be approving forex-denominated loans, but actual disbursements remain a challenge.

“There are long waiting lists at banks,” the council noted.