On the 11th of March 2020, Zimbabwe’s Finance and Economic Development Minister, Mthuli Ncube announced a Currency Stabilization Taskforce as a measure to stabilize the exchange rate and reduce inflation.
He cited that the recent exchange rate volatility has translated into unsustainable levels of inflation; a development which he said was affecting macro-economic stability.
However, a closer look at his pronouncements reveals that this Task Force is just a financial public relations theatrics tactic as shall be shown below:
1) Setting up of the Currency Stabilization Taskforce
Point of Contention: This Taskforce will be chaired by the Minister of Finance.
Why would the Finance Minister chair a taskforce that is meant to correct his failures? If he is genuine, he should let independent and competent people other than him chair the taskforce. It is disturbing to note that the same Finance Ministry and the Reserve Bank which have failed to control the exchange rate are now the same bodies that are spearheading the taskforce. That on its own is a suspicious and deplorable tactic which can be equated to looting if the taskforce is in anyway subject to financial rewards.
More so, it is important for the public to recall and understand that nothing of tangible significance has come out of these much hyped taskforces and as such, people must not expect miracles from these developments.
2) Implementation of a Managed Floating Exchange Rate System.
Point of Contention: Managing a Floating Exchange Rate
The above statement is oxymoronic because in essence, it’s either the exchange rate is floating or managed (controlled). In real terms, Mtuli has just renamed the interbank system to Reuters system and they will still try and manage the rate just like what they did with the interbank system. It’s just like replacing a reader of a wrong script with another one without changing the script and yet expecting the story to sound different.
3) RBZ to be a Significant Player in the Reuters System.
Point of Contention: The RBZ’s Significant Hold on the Exchange Rate
This should be a red flag to any serious business person. It only means that the RBZ will determine the average rate to be used by the system. As such, there won’t be a willing buyer and willing seller approach like what is done on the parallel market. What Mtuli just did is to devalue the RTGS by 100% and introduce a cousin brother of the interbank to trade the devalued RTGS in the name of the Reuters system.
The RBZ doesn’t have any meaningful impact on forex trading in Zimbabwe right now because our country doesn’t have enough forex reserves. As such, they can’t inject or withhold forex into the market, but can only impose an exchange rate if they want to be a significant player.
4) Ministry of Finance Claims to have a Cash Surplus of RTGS 3 Billion.
Point of Contention: Cash Surplus versus Budget Surplus
This is a worrying and disturbing pronouncement. What the government may be having is a budget surplus not a cash surplus. There is a difference between a cash surplus and a budget surplus. A cash surplus is the cash that exceeds the cash required for day-to-day operations while a budget surplus occurs when a government taxes more than it spends.
Mtuli can’t claim to have a cash surplus of RTGS 3Billion when there are fuel, maize-meal and medicines shortages due to lack of forex. This is what got our government into trouble with the IMF and China: the misrepresentation of facts. Furthermore the government can’t brag on a budget surplus when your employees are underpaid and surviving on corruption.
5) The RBZ will mop up excess liquidity being held by corporate and other large holders of the RTGS by offering Corporate Bills (Treasury Bills)
By doing so the RBZ is trying to manage the volumes of RTGS being traded by companies on the black market in exchange of USD. These companies have no other means of getting USD.
Given the track record of the government, very few companies will offer their RTGS for Treasury Bills. They would rather continue buying USD as efficiently and effectively as possible to keep their businesses running.
In conclusion, this whole press statement was just a public relations gesture since nothing will change until the government is humble enough to admit that their de-dollarization move was premature and a political rather than economic move.
There is need to go back to fundamentals and look at the definition of money and install a currency that can satisfy that definition as our official currency until we can afford to introduce our own currency. Without that, this current political administration is just digging a deeper hole that they will even be able to escape.
By Gilbert Kamusasa
Tony Elumelu Foundation Alumni
Young African Leaders Initiative Alumni
SEED STARS Alumni