Prof. Tony Hawkins Rubbishes Mthuli, RBZ’s Exchange Rate Liberalisation Move

A comment from Prof. Tony Hawkins:

1. No major new measures. Merely an extension of the so-called liberalisation of the market with the insistence that in future those banks – not all of them agreed to participate – will set a market rate based on their bids to buy and sell.
2. Even before this was announced, CABS was dealing at 40 to the US for transactions of US$1 000 and above (39 for US$500 and above).
3. If other banks follow this, the move will have merely validated the parallel rate (currently 39.5).
4. RBZ hoping that the two rates will merge somewhere between 18 and 40, but market players say there is very little in the statement to suggest that more dollars will become available. The RBZ apparently believes the assurances of Mr E Cross that there are “lots of dollars” in the informal sector that will be offered for sale by people desperate to lay their hands on ZWL dollars. This is wishful thinking
5. Some of the banks have declined to participate because they do not think the system can work. They are critical that there is no measure of such issues as the retention allowances for exports, the treatment of so-called legacy debt, and just what kind of rates the RBZ will use to try and mop up funds by issuing short-term Treasury Bills.
6. Interestingly, the minister admitted at the meeting with bankers this morning that SI 142 (the mono-currency) was a mistake because de-dollarization is a process not an event.
7. The authorities do not get the reality that people would prefer to hold dollars rather than the local currency. There is nothing in today’s announcement to change that. The USD will remain the currency of preference.
8. An early test will come with the exchange rate over the next few months, does it merge below the parallel rate, which is possible but unlikely, or does the official/interbank rate continue to chase the parallel.
9. In sum, this is an effort to make a system which has not worked in the past. Without an injection – or continuous injections – of forex it is difficult to see why this change. In other words, the progress towards de-dollarization continues.
10. Any movement from the 18.2 official rate towards (or to) the 40 parallel rate will be highly inflationary. Petrol in ZWL – will be an obvious casualty as also will electricity prices, foodstuffs, medical fees etc etc