eBusiness Weekly
Reports Compiled by Business Hub Writers
The Reserve Bank of Zimbabwe should seriously consider scrapping bond notes in circulation as they are no longer serving their purpose, and are now largely used to mop out US dollar inflows coming through money transfer agencies.
Every day, illegal foreign currency dealers line up the streets or station themselves in front of various money transfer agencies and routinely exchange US dollars for bond notes.
The illegal forex dealings mean the bulk of the foreign currency, coming through remittances, never go into circulation but is probably siphoned out of the country before making any meaningful contribution in the economy. Although some have argued that scrapping the bond notes from circulation is as good as addressing the symptoms and not getting to the root of the problem, there is need to take into consideration the fact that both Government and the RBZ, are not yet ready or do not have the capacity to address fundamental issues behind cash shortages, some of which are a result of their own making.
The root of the currency challenges, lies in the country’s fiscal operations characterized by budget over-run of billions of dollars. The budget deficit was financed via overdrafts from the central bank and the issuance of treasury bills. This resulted in a mismatch between RTGS balances and the US dollars in circulation and in the process a huge premium between hard cash and electronic balances.
The RBZ’s prescription was to introduce bond notes, but instead of easing the cash crisis, the move all but worsened the situation. Instead of being used for transaction purposes, bond notes are now being used to mop out forex from the market — talk of bad money driving out good money. Forex dealers, with bond notes, are offering premiums of between 20 to 25 percent in exchange for hard cash. The US dollars are then sold to various economic players in exchange for bond notes and the circle begins again with the foreign currency hardly being used for local transactions.
However, without bond notes, foreign currency dealers, will find it more difficult to mop out foreign currency from the system as they would have nothing to offer as an incentive to foreign currency holders. While there will still be an option to exchange foreign currency for electronic money transfers as well as mobile money, where premiums range between 40 percent to 50 percent, such transactions will be easy to curb if supervision and monitoring systems are put in place.
Without bond notes, analysts say, it should be easy for authorities to monitor transactions. Granted forex dealers can easily come up with more innovative means to transact once bond notes are removed, but the impact of such transactions might be reduced.
The RBZ, with the help of service providers for mobile money, should be in a position to monitor and identify suspicious transactions conducted through mobile phones and bank accounts. As much as most transactions are now being conducted through the use of electronic systems, the frequency of such, for someone who does not operate a business, should be able to alert authorities on suspicious transactions.
There are, however, some who believe the failure by the authorities to act on illegal foreign currency dealers is deliberate. The argument is that the illegal dealings are actually serving a purpose of aggregating and distributing foreign currency to other economic players not on the RBZ’s priority list. The RBZ in 2016 introduced a foreign currency priority list that left out other economic players out of the equation with no official access to foreign currency.
Such economic players are the ones that have resorted to the use of the black market to access hard cash for their import requirements albeit at a premium, which they recover through hiking prices for their products. In other words, remittances are still playing their role of oiling the economy albeit unofficially.
