Sparks of confidence shone from an experienced banker around the central bank’s new head, John Mushayavanhu, this week when he pledged to unbundle foreign currency. The black market has plagued Zimbabwe for 24 years
In an interview after rolling out a bold monetary policy “recalibration,” which heralded a gold-backed currency called ZiG, Moshayavanhu said he had taken concrete measures to bring the armies of black market bosses out of dark corners and…
Achieving stability of the local currency.
But it will struggle to rein in the informal market, which the Fed estimates controls more than $500 million, according to Fed estimates. For his October 2021 report. It packs a punch.
The black market in Zimbabwe has so much power and influence to determine the exchange rate that official businesses have been forced to accept.
It allocates foreign exchange at the same rate as banks do in a stable market.
Independent estimates indicate that the informal black market controls more than US$2.5 billion, fueling the parallel market. It spiraled out of control between 2000 and 2008, when banks ran out of foreign exchange and the economy was in protracted chaos.
The authorities resorted to the dollar reluctantly in 2009.
Zimbabwe’s GDP has risen to about US$49 billion since then.
But even with this growth, markets continued to queue up for street traders to meet their foreign exchange requirements.
Experts say that if Moshayavanhu, the former CEO of FBC Holdings, wins, he will enjoy the goodwill of a country that has bled unresolved for more than two decades, with a series of bankruptcies.
His first move came last Friday, with the introduction of ZiG.
The currency is believed to have the ability to withstand exchange rate fragility, hyperinflation, rapid growth of the money supply, and curtailment of production in some industries.
“What I can tell you is that the days of illegal money changers are numbered,” Moshayavanhu told The Independent.
“ZiG is fully transferable. If you have a real need for Forex. Let’s say you have a bill that needs to be paid in Forex, you go to your bank and the Forex will be available to you and they will debit your ZiG account if you have the money in the account.
“The only people who are likely to go to the parallel market are people who buy ZiG for illegal purposes, and those who buy US dollars for illegal purposes.
The head of the central bank added: “But if you have a real legal need, there is absolutely no reason for you to go to the parallel market.”
After the closure of the foreign exchange auction system, which had been struggling to meet allocations, the switch to a market-determined exchange rate is expected to help it weather the storms.
“Determining the exchange rate, under ZiG, will be determined by the market, just as we have done since January. But you will find that because there is demand for ZiG, ZiG may actually strengthen rather than go the other way.
“I’m sure you saw what we said in the Monetary Policy Statement. At the next QPD (quarterly payment dates) in June, 50% of QPD dues will be paid in ZiG.
“There are only US$80 million of ZiG circulating in this market, and 50% of the QPDs are worth more than US$80 million. There will be huge demand for ZiG.
“I was saying if I were you, I’d start assembling the ZiG now. Because you might find that by the time we get to June, it’ll be so expensive that you’ll lose it.”
“All I can say to Zimbabweans is that ZiG is the future, ZiG is a stablecoin. If you don’t get ZiG now, you will be looking for it as early as June this year. Everyone will be looking for it,” the central bank chief said.
He also defended Zimbabwe’s reserves after analysts said they were too low to support the new currency.
“I don’t know where they get that from,” Mushayavanhu told The Independent, referring to analysts.
“At the date of conversion, we had Z$2.6 trillion worth of reserve funds. When converting that at Friday’s closing exchange rates, it comes to just over US$80 million. In our balances alone, we have US$100 million.
“So, if we wanted, we could buy all ZiG products in this market. Then the next day we say, you have to pay for everything in ZiG. Let’s see where you get it from. So why do they say the reserves are not enough?
“And then, on top of that, and I’m just talking about the cash that we have. Then we have two and a half tons of gold, which means, if that money runs out, but I don’t see how we can do that.” “That money will run out when in reality we have more than enough.”
He added: “The cash adds up to $100 million, in addition to the value of the gold we carry (which is worth about) $185 million. The total is US$285 million, in addition to the total funds in circulation of US$80 million. We’ve been covered three times, actually more than three times.
He added: “So, I don’t understand when people say the reserves are insufficient. What will we cover other than what is already there and supposed to be covered?
Moshayavanhu also refuted allegations that he owned shares in FBC Holdings, which would have made him ineligible to hold the governorship.
“Well, the situation is that FBC is a listed company. The FBC share registry is a public document and it is registered in Zimbabwe and any company registered in Zimbabwe the records are in the company registry. If you go there and find my name, that’s fine. Does that answer you? Independent Zimbabwe
