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Zimdollar makes paper gains

by Staff reporter
14 Aug 2022 at 07:22hrs | Views
The economy has largely stabilised, especially from late last month, as a result of aggressive measures by Government to rein in market indiscipline, and market watchers are confident the latest intervention to introduce smaller denominations of gold coins will likely anchor stability of both the local currency and prices.

Reserve Bank of Zimbabwe (RBZ) has tightened screws on money supply growth and introduced gold coins on July 22 to mop up excess liquidity as well as provide an alternative asset to hedge against inflation.

According to the RBZ, 4 475 gold coins worth $3,7 billion had been sold as at August 10, with 90 percent having been purchased in foreign currency.

"The high demand for the gold coins will assist in mopping up liquidity from the market and thus strengthen demand and enhance the value of the local currency," said RBZ Governor Dr John Mangudya in the Mid-Term Monetary Policy Statement last week.

"The Bank shall continue to release additional gold coins into the market on an ongoing basis in line with demand."

Old Mutual believes the gold coins could be an effective instrument in curbing inflation and stabilising the Zimbabwe dollar.

"The gold coins seem well-meaning and their attractiveness as a store-of-value investment instrument seems sound in the context of inherent monetary policy concerns. This notwithstanding, and as with any other policy initiative, implementation modalities are critical," it said in a research note.

Their prescribed asset status and the ability of investors to purchase them in local currency, it added, presents further support for gold coins beyond their intrinsic value.

Fiscal authorities have also weighed in to buttress gains that have been realised so far.

Finance and Economic Development Minister Mr George Guvamatanga last week directed line ministries, Government departments and agencies to review their procurement contracts and put them within the framework of the willing-buyer, willing-seller exchange rate, which is now being used for transactions.

There are fears some contracts have been pegged against parallel market rates and therefore driving currency instability.

"In this regard, Treasury is immediately suspending all payments to MDAs (ministries, departments and agencies) while awaiting your submission of reports of findings of the due diligence exercise on all running and future contracts with special focus on pricing," said Mr Guvamatanga.

"Going forward, you are required to seek Treasury approval on contract prices in order to ensure effective control in the utilisation of public resources as guided by the (Public Finance Management) Act."

Government has been making huge payments in local currency to companies carrying out infrastructure projects.

Finance Minister Professor Mthuli Ncube recently indicated Government had noted with concern that some suppliers who supply goods and services to public institutions were channelling funds they receive to the parallel market. The Financial Intelligence Unit – a unit of the central bank – is now expected to follow up and scrutinise all payments made to Government suppliers to establish how the funds have been used.

"Where it is determined that funds were channelled to the illegal foreign exchange market, the bank accounts involved will be frozen indefinitely pending criminal investigations and prosecution of the companies concerned and their directors and officers," said Minister Ncube.


Now trading at an average rate of US$1:$800 from as high as US$1:$900 at the beginning of July, the Zimbabwe dollar is gaining value on the parallel market.

It is believed Treasury has managed to create demand for local currency by addressing money supply issues.

Confederation of Zimbabwe Retailers (CZR) president Mr Denford Mutashu said it was "quite encouraging to note that monetary authorities have realised where the current exchange rate instability has been emanating from".

"I can authoritatively state that there has been significant stability of the local currency to the extent that retailers who have been shunning the local currency are now demanding it, albeit at good rates as well," said Mr Mutashu.

Economist Mr Tinevimbo Shava indicated that the Zimbabwe dollar had made considerable gains on the parallel market as tight liquidity conditions take a toll on activities.

"It is no longer business as usual because the market is very dry," he said.

Government has since made a commitment to streamline its procurement processes, which have been a conduit of money supply to the parallel market through Government suppliers.

Source - The Sunday Mail