Govt moves to defend Zimdollar
PRESIDENT Mnangagwa has announced a raft of measures to make the Zimbabwe dollar a convenient medium of exchange in local transactions, while disincentivising use of the United States dollar, as Government moved to rein in market indiscipline and boost confidence in the economy.
Among sweeping interventions announced last night, lending by banks to both Government and the private sector was temporarily suspended, while cash withdrawals for amounts above US$1 000 will now attract a 2 percent levy.
The Reserve Bank of Zimbabwe (RBZ) was directed to settle all foreign currency auction system allotments within 14 days to improve confidence in the system.
The central bank will only be limited to auctioning off the funds it has.
Government believes the economy is in relatively good health and is “convinced that the recent exchange rate movements are being driven by negative sentiments by economic agents as opposed to economic fundamentals”.
The negative inflation expectations were feeding into further volatility of the Zimbabwe dollar as it created artificial demand for the US dollar, creating a vicious cycle in the process, which had to be broken, according to President Mnangagwa.
The Financial Intelligence Unit (FIU) therefore will heighten its monitoring of financial transactions, while some financial crimes linked to currency sabotage will soon attract mandatory custodial sentences.
“Government is putting in place the following measures to restore macro-economic stability, boost confidence in the economy, increase the appeal of the local currency, preserve value for depositors and investors and deal with market indiscipline,” said the President.
“These measures are expected to restore macro-economic stability and
support the current robust economic recovery trajectory.”
He said as part of the confidence-building measures, Government has begun compensating depositors whose savings lost value during the 2019 currency changeover.
“The currency changeover of 2019 adversely affected the value of bank deposits of the banking public mainly as a result of the depreciation of the exchange rate.
“To address this value erosion, Government has resolved to compensate the loss of value on bank deposits to individuals who had funds in their bank accounts of US$1 000 and below as of end of January 2019.
“The compensation for amounts less than US$1 000 has begun and will continue.”
The President said a framework is being put in place to compensate individuals who had bank accounts of up to US$100 000.
The current dual currency system, he said, shall remain in place, albeit under a carefully managed de-dollarisation process.
In order to rein in money supply growth and restrict banks from dumping too much liquidity into the market through loans, President Mnangagwa said lending by banks had been suspended, while investigations into possible abuse of loan facilities to feed the parallel market are ongoing.
In addition, the quarterly reserve money growth will be further reduced to zero percent per quarter.
“In order to minimise the creation of broad money that is prone to abuse for
purposes of manipulating the exchange rate for financial gains, and to allow current investigations, lending by banks to both the Government and the private sector is hereby suspended with immediate effect, until further notice.”
He added: “The security agents of Government and the Financial Intelligence Unit shall, with immediate effect, enhance their roles to effectively monitor financial transactions in order to address the delinquent arbitrage behaviour in the economy.
“Civil penalties shall be substantially reviewed upwards to ensure that such behaviour is discouraged.”