BREAKING DOWN THE AMBIGUOUS RBZ STATEMENT
As everyone (Since all Zimbabwean’s are economists now) already knows the RBZ yesterday released a loaded, but ambiguous statement ‘in response to the COVID-19 pandemic.’ There are a lot of questions that we still have and had hoped the anticipated SI was going to clear a few questions up. In the meantime, we try and break it down according to our understanding, at this stage. Once the SI is out, we will send an update.
COVID-19 & FREE FUNDS USAGE Free
Honestly the two are not directly related. We don’t see how the use of any hard currency to transact helps reduce the spread of COVID. If anything, most of the USD is held as physical cash by individuals and not electronically. This was just an excuse by government to bring back the multi-currency regime and at the same time save face. Remember the ‘no going back, Mono-currency here to stay’ statements?
DIGITAL FINANCES, GOLD & TOBACCO
This could be the crux of the issue. Zimbabwe is having a serious FX crisis with gold production plummeting (not helped by an unfavourable retention regime), tobacco season opening uncertainty and the little issue related to the closure of the only certified refinery to deliver gold to major international banks in South Africa. The only way to access FX would be to allow it to be used formally and hopefully have more of it circulating.
We are not sure if majority of our “free funds” will be transacted digitally as users still don’t have confidence in the financial system and the regulators. As a gold, tobacco or cotton player why would I trust that what is deemed as USD in the system is really USD. Can I use it to pay offshore? If so can I withdraw some of it as hard cash? Or if I don’t spend it will it be swept at 25:1 after 30 days?
Another U-turn reversing the managed float announced some weeks ago! This, in our view, is for the privileged select few that will continue to access USD at this artificial non-market level. We think retailers and service providers will price in such a way that it makes sense for you to pay in hard currency, so they can restock, etc. You cannot have a multi-currency regime with a weak currency that is fixed. There is only one conclusion, ZWL will fail as it will be shunned by users.
SO WHERE ARE WE?
In short, mono currency regime is gone. We are back to multi-currency with the ZWL as part of the basket at a fixed rate. It’s a clever 1:1 regime, except users are (or rather, should be) more the wiser now. There is no coming back from here, de-dollarisation is history!