UPDATE 2-Zimbabwe c.bank eases forex rules for some in bid to improve dollar flows

Source: UPDATE 2-Zimbabwe c.bank eases forex rules for some in bid to improve dollar flows – Reuters

  •  Forex holders exempted on domestic transactions
  • C.bank hopes to unlock $1.3 bln held by firms, individuals (Adds detail, quote)

HARARE (Reuters) – Oil firms, chrome miners, embassies and international organisations in Zimbabwe can use foreign currencies for local transactions, the central bank said, easing rules for some sectors in a bid to boost the flow of dollars in the economy.

Last month, Zimbabwe banned the use of foreign currencies in domestic transactions after renaming its RTGS currency Zimbabwe dollar and making it sole legal tender, ending a decade of dollarisation.

The exemption, announced on Wednesday and which the central bank hopes will unlock $1.3 billion held in banks by exporting companies, individuals and international organisations, is the latest unexpected policy change by the government. It could embolden critics who argued that last month’s currency reforms were hurried.

The ban on domestic use of foreign currencies caught the market by surprise as only a week before, President Emmerson Mnangagwa and Finance Minister Mthuli Ncube had repeated a pledge to only introduce a local currency at the end of this year.

The new rules have stoked inflation, which soared to a new 10-year high of 175.66% in June, raising fears of the return of hyperinflation of a decade ago.

Those holding foreign currency have been reluctant to sell on the official interbank market, where the Zimbabwe dollar has slid by 30% since June 24 to trade at 8.9 to the greenback on Wednesday.

In a circular to banks seen by Reuters, the Reserve Bank of Zimbabwe said those earning foreign currency would be allowed to buy fuel in dollars and that chrome mining firms and smelters could buy chromium from small scale producers in forex.

“To facilitate increased accessibility of fuel in the country and to reduce pressure on the inter-bank foreign exchange market, direct fuel imports are still permissible,” the central bank said in the circular.

Shortages of fuel, dollars and medicines and rolling power cuts lasting 18 hours a day are throttling an economy grappling with a severe drought that has cut the staple maize harvest by half.

Analysts say currency reforms in a country where the population is distrustful of government economic polices and the national currency can not quickly fix the deep problems that have constrained economic growth. (Reporting by Nelson Banya Editing by Gareth Jones and Emelia Sithole-Matarise)

COMMENTS

WORDPRESS: 3
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    Mukanya 3 years ago

    The full ill-thought dollarization of the Zimbabwean currency impact/vibrations now being felt.

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    Firefighting. Should have been part of SI. Weak consultation and hasty action on important matters. Now I see another hasty decision on DSTV. Is it any different from imported cell phones, imported electricity, imported medicines, Kwese, DEOD, external university education, subscriptions? They are selling decoders locally (like microwaves and cellphones) and have local bank accounts so must get local currency and bid on interbank like anyone else to remit. All other countries pay using local currency, why Zim? This pushes people onto the hurting alternative market in large numbers competing with essentials like medicine and power so that must stop.

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    This is all very bad. They must change the money at the banks and buy using local currency. That is how you strengthen the local currency and ensure equitable sharing of forex. If one entity receives the forex that prejudices the rest. If They can but with dollars like they are in USA how does one ensure that they use only dollars received from outside, and not wash black market dollars for friends and relatives? This is senseless and must just stop. Imagine a market like RSA or UK and a few people are allowed to buy fuel in USD.