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The current monetary policy review will worsen current fiscal imbalances

20 Feb 2019 at 17:25hrs | Views
Background and Review

It was trajectory, forex premiums is hurting Zimbabweans and hostile to business environment. FCA accounts have yielded positive results. FCM has increased deposits, largely business is being charged in electronic money. Current presentation pauses risk to re-dollarisation, the current black market rate becomes official, which reduces inflation according to the Reserve Bank Governor Dr Mangudya. Export scheme has been eroded by inflation, and imbalances have been addressed by diaspora remittances. There is pricing system versus dollarization of the economy. When there is increase of prices, the commodity becomes scarce, followed by panic and the demand will be low. There is establishment of trade mechanisms, and the current review, restore domestic competitiveness. What then it means is that business will be forced to climb down on charging in RTGs and bond notes because of low demand. This is an unofficial way of announcing dollarization of the economy. The economy looking at the current stance of the monetary policy, the economy will dollarize itself. Establishment of the inter-bank market, which will deal with the Foreign exchange market (FEM). This is meant to formalize the buying of USD and normalize foreign currency markets using mobile banking platforms, to maintain stability in foreign exchange markets, which therefore means RTGs will be dollarized, indicating that RTGs dollars shall be used in the whole country. This maintains price stability. What is RBZ's current role in the economy? Is it control or regulatory of the currency or procurement and setting official rates? This is trajectory.

Dollarizing the economy without addressing the fundamentals


I attended the monetary review, the Governor mentioned nothing about production levels and reserve of exports. Zimbabwe has now a virtual local currency called the RTGs dollar", this is a Zim dollar by any means. The local unit will then be determined by the inter-bank market of forex and forex bureaus. What then this means is that the daily rates or official rates will be published in the media or banking malls which then regularize the official rates or currency. They have announced unofficial re-dollarization of the economy. Basically Zimbabwe has a sovereign currency which many economists such as Dr Mashakada predicted earlier the year. RTGS is a euphemisms for Zim dollar. The 1:1 rate is now replaced by the debunk RTGs currency, determined exchange rate based on a floated domestic currency rate. Basically what this means is that Zim dollar will be easy to be introduced because given that the exchange rate is already available on the market. What this means is that they have pushed people to the hedge, basically it means RTGs dollar is now the medium of exchange. People can then still choose to make private deals in forex like properties and rents. Parallel markets will react within the next five days. This will result in RTGs being used as one of the currencies by all entities in Zimbabwe for the purposes of pricing goods and services, debts, accounting and settlement of transactions.

Biti's remarks & response


Former Zimbabwe Minister of Finance, Tendai Biti made a few remarks about the return of Zim dollar and Zimbabwe experiencing hyper-inflation. He made a stunning tweet which send authorities into panic mode. What this basically is that, this monetary policy review was hast one, pre-determined to the actual cause, and response to Biti's remarks which had send the markets into panic. There was nothing much on the monetary policy review except a few amendments and changes, and it was an indirect statement making it clear that the Zim dollar is not returning anytime from now, but these are measures put in place, to curb inflation. My own assumption is Zim dollar is on its way, but the RTGs system is paving way for Zim dollar return.

Tinashe Eric Muzamhindo writes in his personal capacity as an academic and he is studying Doctor of Philosophy at Women's University of Africa and he can be contacted at tinamuzla@gmail.com

Source - Tinashe Eric Muzamhindo
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