Opinion / Columnist
'Let's adopt the rand'
07 Jun 2016 at 06:32hrs | Views
BANKERS and industry have recommended the adoption of the South African rand as the major transacting currency to reduce concentration of risk associated with heavy reliance on the United States dollar currently accounting for 95 percent of all transactions.
This comes as the Reserve Bank of Zimbabwe has moved in to expedite cash importation by banks after including cash imports under the priority one (High) category of foreign exchange payments.
In separate presentations before the portfolio committee on Finance and Economic Development yesterday, representatives from the Bankers Association of Zimbabwe and the Confederation of Zimbabwe Industries, said the adoption of the rand would be one of the measures needed to address the cash challenges the country is facing.
"It is recommended that the South African rand be used as the major transacting currency. This reduces concentration of risk associated with heavy reliance on US dollar transactions (that account for 95 percent of all transactions up from 60 percent in 2010)," BAZ president Dr Charity Jinya said.
"In 2015, Zimbabwe lost $1,8 billion to externalisation. It is further recommended the US dollar be reserved to make offshore payments and local electronic payments only," she said.
South Africa is Zimbabwe's largest trading partner with export to that country representing 78 percent of total exports. Imports from SA represent 22 percent of total imports in March 2016, according to statistics from the Reserve Bank of Zimbabwe.
"We have recommended that let us use the rand as the transacting currency. It does not have the same attractiveness as the US dollar," said Dr Jinya.
Zimbabwe lost $1,8 billion to externalisation in 2015 while the informal sector employs roughly 80 percent of labour and is worth over $7 billion, predominantly consisting of vendors, farmers and small scale traders who are reliant on cheap imports.
This has the effect of undermining local production resulting in Zimbabwean products failing to compete in the region.
But adoption of the rand could mean that the cheap imports become irrelevant as local producers would also adjust cost structures to regional levels.
Also, cheap imports will not find a market as prices will be at par with local goods.
"It will take away the incentive where we are having some of these products particularly some of the fast moving consumer goods which are landing at ridiculous prices are doing so for the purposes of securing the US dollar," CZI vice president Sifelani Jabangwe said.
To promote efficient utilisation of foreign exchange and to re-orient import demand towards productive uses, the Reserve Bank and the Business Council, represented by the Confederation of Zimbabwe Industries, the Zimbabwe National Chamber of Commerce and the Bankers Association of Zimbabwe came up with foreign exchange priority list to guide banks in the distribution of foreign currency.
"In order to expedite importation of cash by the banks to liquefy the economy, such importations shall be considered under priority one (High) of the priority list for foreign payments guidelines," RBZ director (Foreign Exchange) Moris Mpofu said in a circular to banks.
Given the size of the informal sector, the bankers association is of the view that measures need to be put in place to formalise the sector.
According to the World Bank statistics, current banking penetration in Zimbabwe is 17,3 percent of adult population banking and only seven percent of the bottom 40 percent of adults in relation to income earned possesses a bank account. The bottom 40 in terms of income generating capacity is predominantly the informal sector.
"The circulation of bond notes alongside the South African rand will force informal sector participants to open bank accounts. This will result in an increase in deposits in the formal banking sector," said Dr Jinya.
Other recommendations moved by bankers include putting stringent measures in place to deal with smuggling of cash over the borders so as to limit leakages.
The swift and fast transaction to a cashless society is recommended by encouraging the use of plastic money.
This can be achieved by creating an enabling environment which will culminate in reducing the cost of transacting in plastic money.
This comes as the Reserve Bank of Zimbabwe has moved in to expedite cash importation by banks after including cash imports under the priority one (High) category of foreign exchange payments.
In separate presentations before the portfolio committee on Finance and Economic Development yesterday, representatives from the Bankers Association of Zimbabwe and the Confederation of Zimbabwe Industries, said the adoption of the rand would be one of the measures needed to address the cash challenges the country is facing.
"It is recommended that the South African rand be used as the major transacting currency. This reduces concentration of risk associated with heavy reliance on US dollar transactions (that account for 95 percent of all transactions up from 60 percent in 2010)," BAZ president Dr Charity Jinya said.
"In 2015, Zimbabwe lost $1,8 billion to externalisation. It is further recommended the US dollar be reserved to make offshore payments and local electronic payments only," she said.
South Africa is Zimbabwe's largest trading partner with export to that country representing 78 percent of total exports. Imports from SA represent 22 percent of total imports in March 2016, according to statistics from the Reserve Bank of Zimbabwe.
"We have recommended that let us use the rand as the transacting currency. It does not have the same attractiveness as the US dollar," said Dr Jinya.
Zimbabwe lost $1,8 billion to externalisation in 2015 while the informal sector employs roughly 80 percent of labour and is worth over $7 billion, predominantly consisting of vendors, farmers and small scale traders who are reliant on cheap imports.
This has the effect of undermining local production resulting in Zimbabwean products failing to compete in the region.
But adoption of the rand could mean that the cheap imports become irrelevant as local producers would also adjust cost structures to regional levels.
Also, cheap imports will not find a market as prices will be at par with local goods.
"It will take away the incentive where we are having some of these products particularly some of the fast moving consumer goods which are landing at ridiculous prices are doing so for the purposes of securing the US dollar," CZI vice president Sifelani Jabangwe said.
To promote efficient utilisation of foreign exchange and to re-orient import demand towards productive uses, the Reserve Bank and the Business Council, represented by the Confederation of Zimbabwe Industries, the Zimbabwe National Chamber of Commerce and the Bankers Association of Zimbabwe came up with foreign exchange priority list to guide banks in the distribution of foreign currency.
"In order to expedite importation of cash by the banks to liquefy the economy, such importations shall be considered under priority one (High) of the priority list for foreign payments guidelines," RBZ director (Foreign Exchange) Moris Mpofu said in a circular to banks.
Given the size of the informal sector, the bankers association is of the view that measures need to be put in place to formalise the sector.
According to the World Bank statistics, current banking penetration in Zimbabwe is 17,3 percent of adult population banking and only seven percent of the bottom 40 percent of adults in relation to income earned possesses a bank account. The bottom 40 in terms of income generating capacity is predominantly the informal sector.
"The circulation of bond notes alongside the South African rand will force informal sector participants to open bank accounts. This will result in an increase in deposits in the formal banking sector," said Dr Jinya.
Other recommendations moved by bankers include putting stringent measures in place to deal with smuggling of cash over the borders so as to limit leakages.
The swift and fast transaction to a cashless society is recommended by encouraging the use of plastic money.
This can be achieved by creating an enabling environment which will culminate in reducing the cost of transacting in plastic money.
Source - the herald
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