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Zimbabwe's reserve money falls to $11,26 billion

by Staff reporter
12 Jul 2020 at 10:50hrs | Views
The Reserve Bank of Zimbabwe (RBZ) says introduction of the foreign currency market auction system saw reserve money falling by 11% to $11,26 billion as at July 3.

Zimbabwe conducted its first weekly foreign currency auction on June 23, which saw the local dollar trading at 57.3582 to the United States dollar, which marked the end of a fixed exchange rate that had been pegged at 25 to the US dollar in March.

According to the RBZ's latest report, the declining money supply is due to a decrease in RTGS balances on the market.

On June 26, reserve money stood at $12,66 billion.

"The decline of 11% in reserve money is attributed to the continued withdrawal of excess liquidity from the market through purchases of foreign currency from the auction system," the RBZ said.

At the beginning of the year reserve money stood at $9,2 billion and grew to $13,9 billion as at June 19, 2020 before the decline started after the introduction of the auction system.

Reserve money refers to the currency in circulation plus deposits with the central bank.

RBZ said the decline in RTGS balances was partially offset by increases in other deposits, currency issued and required reserves.

"Growth in other deposits of $219.13 million over the week largely reflected the impact of exchange rate depreciation on the foreign currency component of the deposits," the central bank said.

"The auction exchange rate depreciated from $57.36/USD on the previous week's auction, to $63.74/USD," it said.

Other deposits grew to $679 million from $460 million as June 26.

These deposits were mainly proceeds of drawdowns from foreign currency loans, which were advanced to Fidelity Printers and Refiners to purchase gold.

Banking system reserves went down to $8,86 billion from $10,52 billion during the period under review.

Bank reserves are the cash minimums that must be kept on hand by financial institutions in order to meet central bank requirements.

A financial institution cannot lend the money, but must keep it in the vault, onsite or at the central bank, in order to meet

any large and unexpected demand for withdrawals.

The Zimbabwe dollar cash in circulation is now at $1,7 billion from $1,1 billion as of January this year.

RBZ has introduced a cocktail of measures to curb the parallel market in foreign currency that include a clampdown on mobile money agents.

The local currency that was re-introduced a year ago after a decade of dollarisation is now trading at US$1:$90 on the parallel market.

Prosper Chitambara, an economist, said although the decline in reserve money was a positive development, the RBZ was facing an uphill task in sustaining the thresholds.

"It's a positive development that must be sustained in order to a have a meaningful positive impact on inflation and the exchange rate," Chitambara said.

"Sustaining it, however, may prove difficult in light of dwindling fiscal revenues as well as increased pressures on government spending owing to Covid-19."

Zimbabwe had fixed the exchange rate in March citing the need to support the economy during the Covid-19 pandemic.

Source - the standard