RBZ Taking Zimbabweans For A Ride Again

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The recent pronouncement by the monetary authority RBZ to re-introduce Foreign Currency Accounts (FCA), while maintaining a separate RTGS bank balance is clearly an insult to our intelligence. There is no doubt the monetary authorities do not care about struggling Zimbabweans, as they are desperately introducing measures that create a new market for foreign funding.

The RBZ has officially buried any prospects of revaluing our bank balances but have however kept the balance reflecting only on paper, while they admit the bond is not 1:1 to the USD, they have allowed the reintroduction of new FCA accounts, meaning all existing accounts are now bond notes, unless one was actually depositing the foreign currency.

This is a major trust issue! If we originally started off in 2008 with actual foreign currency, why should we trust the same system to deposit new foreign currency when there is no formal explanation to what eroded the RTGS bank balance, before the bond note introduction, which to date has no Nostro backing, neither can we confirm that it’s still being guaranteed by the Afrexim bank as previously assured by the Reserve Bank Governor that it will maintain value.

Rewinding back to what happened in 2008 when account holders lost their money as the Reserve Bank of Zimbabwe raided foreign currency from depositors ‘accounts. In the same year they officially removed the Zimbabwe dollar on the introduction of multi-currency which saw the formal trading of Foreign Currency Accounts, to date this is the official trading bank balance, fast forwarding to 2017 the bond notes were subtly introduced as a surrogate currency to incentivise farmers.

Zimbabweans are again crying foul after Reserve Bank of Zimbabwe Governor Dr John Panonetsa Mangudya’s Monetary Policy announcement to retain the official USD Bond rate at 1:1, 2% tax increase on sending money and creation of separate foreign currency account, all being described by experts as nonsense and based on bad theory.

 “Central banks are the top cops on the beat controlling the economy’s lifeline. They see everything and know everything. If they don’t, they are not doing their job. And if they don’t promptly and properly act on what they see and know, they should think again about the sacred duty of public service,” International Economist at the Federal Reserve Bank of New York and former Lecturer at Columbia Business School Dr. Michael Ivanovitch once said this.

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Analysis: Watch Government Domestic Debt

The most important issue is government domestic debt which is now at $9 billion (it is actually between $10-11 billion). In less than a year the government has more than doubled domestic debt, it was $5.5 billion at the end of October 2017. When Tendai Biti left the Finance Ministry in 2013, it was a relatively insignificant $200 million. The new government has added $5 billion in less than a year. To put this into perspective, government has borrowed more than our annual $4 billion budget. It is unprecedented.

Furthermore, government has not said it will stop issuing Treasury Bills to freeze this debt. If anything, government anticipates that it will borrow again further increasing money supply. The reintroduction of statutory reserves at 5% of RTGS deposits is an attempt to mop up excess liquidity that government will create.

Other issues

1. The purported money transfer tax downward review is actually an increase. A $100 transfer was previously paying a flat 5 cents tax. It will now attract a $2 tax.

2. The directive to force foreign trucks to pay for fuel in foreign currency is meaningless. Locals will simply purchase the fuel and sell it to the truckers at a profit. The issue that must be resolved are the exchange disparities between Bond Notes, RTGS Balances and the US Dollar. Without resolving these disparities arbitrage opportunities available, not just in fuel.

3. The return of FCAs effectively means all RTGS balances are no longer US Dollars as previously claimed. It is the return of the Zim Dollar via RTGS.

4. Government talks with the World Bank are largely pointless. Even if GoZ paid off all its debt, it would not be able to access finance due to ZIDERA. ZIDERA directs US representatives to veto any decision to extend funding to Zimbabwe.

Making a mockery of the current economics being propagated by the current government on Twitter Alex Magaisa said

Credit – Kukurigo Updates

1 Comment
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