Still wild to think the government woke up one day and outlawed the activity that pulls in a third of banks’ revenue. The government suspended all lending in the country and financial institutions are scrambling to engage them with a view to changing their minds.

Let’s look at how banks and other financial institutions will be affected by the suspension of lending.

Banks 

The banking business is the lending business. That is their core business. Banks make most of their money from interest charged on loans a.k.a interest income. They also make money from fees and charges but that’s secondary income.

So, you would conclude that suspension of all lending would be a massive blow to banks. In Zimbabwe, while it is a massive blow, it is not a devastating one. 

The income mix for Zimbabwean banks is a bit different. They don’t earn as much from interest income as they do from other sources like bank charges. Income from fees and charges has been growing across the globe to be fair but Zimbabwe is still a leader in that space.

Banks lend out the monies deposited with them and the benchmark is that they lend out 70% of the deposits they receive. In 2021 the loan to deposit ratio was 48.27%, indicating reluctance to offer loans.

That’s like someone giving you $100 and giving you permission to invest/spin $70 and you only spin $48. It just means you are afraid of losing the money hence why you invested only $48 of the $70 that was available to you.

This has been the complaint for years in Zimbabwe. Banks have been so risk averse, still reeling from massive loan defaults that sank other banks, that they have relied on bank charges for their survival.

Interest income has been slowly rising but it’s still not comparable to the other sources of income.

Banking Sector Income Mix for the year ended 31 December 2021

Source: RBZ

Interest income contributed 34.99% to total income whilst non-core activities contributed 65.01% combined. [ Main non interest income came from; Fees and commissions-31.8%, Other non interest income-23.97%]

Some banks can weather the storm better than others

Losing just over a third of revenue should be enough to put some in financial trouble. However, some won’t be sweating that much. The figures above are sector averages. Different banks have different income mixes.

For example, Steward Bank’s last financial statements show that interest income was ZW$515 million compared to ZW$2.5 billion in non-interest income. Meaning interest income was only around 20% of total income. 

20% is still a lot to lose but if the sector average is 35%, there are other banks with interest income contributions way above that. Those are the ones that will feel the pinch way more.

Then again, there is always the option of increasing bank charges to compensate for lost interest income. I’m not a betting man but I would wager my life savings that charges will go up soon.

So, banks have a way to somewhat weather the storm and good luck trying to get them to lower charges when the suspension is lifted. Meaning they may actually end up in a better position when all is said and done.

Main reason this won’t affect banks too much

I believe the suspension of lending activities will only be for a little while. An economy cannot function without credit and so I think as soon as the government is done with its investigations, lending activities will be resumed.

So, if this goes on for 2 months, the average bank would only lose 5.8% (3.3% for Steward Bank) of its expected annual income. [2/12 months * 35% (interest income)]. That’s assuming average loans granted per month won’t increase in the months just after lending resumes.

I think banks will be flooded with attractive loan applications as soon as the suspension is lifted. They can make up for lost time then.

There will be pressure from other sectors on the government to lift the suspension as I think they underestimated its impact on the economy as a whole. 

Business will pressure the government

There are businesses that rely on borrowing for their operational viability and they are going to struggle and in turn pressure the government to lift the ban. Some of these businesses need loans to purchase raw materials and equipment, pay salaries and other short term expenses.

The government has been boasting that productivity and capacity utilisation have been improving in the economy and the lending suspension will work against that. 

As we all know by now, Zimbabwe’s real chance of coming out of this recession is in productivity. Any measure that directly and severely affects the productivity of companies cannot stand for too long.

Look at who has been getting loans from banks and you will see how suspension of lending can only be a short term fling.

Sectoral Distribution of Loans as at 31 December 2021

Source: RBZ

Just over three quarters,76.29%, of loans go to productive use. Of those productive loans, close to 29% goes to the government’s darling agricultural sector. Seeing as a significant number of powerful politicians run farms, those loans will be back in no time.

Whilst we are talking about businesses being affected by the lending suspension, we should note that most startups, sole traders and small businesses won’t miss a beat. 

Almost none of the startups we talk to have ever gotten bank loans in their whole existence. Most also avoid microfinance institutions whose interest rates are prohibitive. That leads us to…

The parallel banking system

Some are afraid the lending suspension will create an informal banking system. That’s absurd, the parallel banking system already exists.

Some believe the government’s move will legitimise the parallel banking system. That’s a more reasonable fear. However, I think that comes from underestimating just how strong the parallel banking system is already.

It is the fortunate few that have access to formal loans that do not know that there are just as many if not more financial products in the shadows than along Samora Machel avenue. 

Communities have long organised themselves to pool resources and offer each other loans. Some turn to family and close friends, as many startups do and get loans on good terms. 

We have maround, cooperatives and even some tame loan sharks in our neighbourhoods. Of course the break-your-legs-if-you-don’t-pay kind exists too. 

The interest rates on the parallel banking market are not far off from what some microfinance institutions charge. I was horrified to find a registered microfinance institution charging 30% interest per month and I can tell you right now that you can get better terms from some loan sharks.

Medium to large businesses hungry for credit won’t find too many products tailored for them on the parallel market though. So, I don’t think they will have an outlet until the suspension is lifted. Hence why I think the government will renege sooner rather than later.

Microfinance institutions (MFIs)

2021 was a good year for both credit only and deposit taking microfinance institutions. The industry saw improvements to capitalization, portfolio growth, and profitability. And now this.

It’s a shame because these companies will feel the heat the worst. They do not have a sizable chunk of non-interest income like banks do. They depend mostly on interest on loans and now they can’t offer any loans.

If we work with the assumption that 95% of their income is interest income, we see that a 2 month suspension of lending activity would cost them around 16% of expected annual income. We saw that for the banks the loss of income was around 5.8%. 

Let’s hope the suspension doesn’t last for 2 months because I think we would see many MFIs close shop, not all can weather a 16% cut in income. 

Of course, what applies to the banks applies to MFIs also in that there could be an upsurge in loan applications when the lending suspension is lifted. They could make up for lost time then. For now, all they can do is focus on collecting loan instalments for already processed loans.

I mentioned how 2021 was a good year for them but even then, 28 credit only MFIs had shut down by the 31st of December. So the lending suspension is sure to claim some victims in the MFI industry. The longer the suspension is held, the more bodies will fall by the wayside.

How badly do we want to halt ZW$ collapse? 

While there is a chance that the lending suspension will slow the collapse of the ZW$, there is an equally good chance that we will crush some legit businesses in the process. 

Businesses that rely on credit, especially for day to day operations, will struggle. Whilst the banks that would have lent to them will most probably be okay.

At the same time, the MFI industry which was finally starting to grow may be set back years, with some falling off completely. 

The sad part is that there were other measures introduced by the government that almost certainly guarantee that the lending suspension won’t even succeed in reversing or even slowing the collapse of our local currency. So we are likely to sacrifice some businesses and get nothing in return for it.

I leave you with Eddie Cross’ thoughts on the chances of success for the lending suspension.

The query now lies in the actions they are taking to try and implement that decision. One of the people I have talked to stated that it might work, but I would have preferred a more radical and much more straightforward package of actions.

I think this is compacted, it involves a mixture of different approaches and for that reason, it may not achieve what they are hoping to achieve.

Eddie Cross

You should also read:

4% forex tax & withdrawal levy: Forever banishing the idea of banking USD

RBZ on suspension of bank lending. Partly drawn loans are suspended too. What is the rationale behind these decisions?

RBZ finally identifies actual cause of Zimdollar collapse but maintains old measures

The post With lending suspended, banks will be okay but microfinance institutions likely to struggle appeared first on Techzim.

The Zimbabwean government did a number on banks, suspending loans that are responsible for a third of their revenues. We know that banks are trying to engage the authorities to see if they can’t find a better solution to the abuse of loan funds by the public.

Banks are going about it in a civil way, for fear they could put a target on their own backs. We all know they are fuming in the background. If only we could get an honest reaction to the government’s measures. 

For a minute we thought one bank had given their candid response to the president’s controversial measures. A paper was circulating on social media, purporting to be BancABC’s official summary and analysis of the president’s economic measures.

The paper was brutally honest and I imagine that’s how most in the banking industry feel about the government’s policies. However, the paper in question was not from BancABC.

BancABC has unequivocally distanced itself from that document. 

IMPORTANT NOTICE: 

We have been alerted of an economic paper circulating on social media which has been erroneously quoted as BancABC’s response to Policy Changes recently announced by the Government. The paper does not reflect the position of the Bank, its Board or Management. The Bank is fully aligned with the directive issued by Monetary Authorities and will implement all measures as directed and in full compliance with the law. 

For more information, kindly contact us via: 

Email: contactcentrezw@bancabc.co.zw 

Phone: 08677008439 or 08677008666 

BancABC on twitter

I believe BancABC here. There is no way the paper came from them. Even if they felt that way, they would not put those thoughts on their letterhead. So that rules out this being an accidental leak in my opinion. 

Besides, you can clearly see that whoever the author is did not have access to a high resolution copy of the bank’s logo. I could be wrong and this all could have been planned to introduce just doubt if the paper ever leaked. I don’t think that’s the case though.

That said, questions arise. Who wrote the scathing analysis? And even more importantly, why did they try to pin it on BancABC? Why BancABC specifically? Was the choice random or was BancABC firmly in the crosshairs?

Could this be the work of an ex employee or a disgruntled customer trying to get the bank in trouble? 

Or chillingly, could this be the work of a rival bank playing dirty? We can’t rule out the possibility.

All that said, you can read for yourself the paper in question. You’ll have to agree the author makes very good points here and betrays a knowledge of the topics in question as well as access to some hard to find data.

SUMMARY & ANALYSIS ON ECONOMIC MEASURES BY PRESIDENT

Appendix

-Gvt believes that the growth in LCY deposits has caused volatility in the FX market.
-While lending by banks has in part contributed to some level of money creation, this only represent a fraction on the drivers of FX volatility
-Growth in LCY deposit is largely blamed on huge Gvt payments in respect of local
contractors & quasi fiscal operations

-Clearly, the huge growth in LCY deposits is concentrated specific months which could be associated with the huge Gvt
payments which in turn triggered exchange rate volatility.

-Banks make 20 50% of their income through interest income, arising from lending activities. Banning lending will therefore endanger their viability.
-Similarly, companies require working capital facilities to restock, increase capacity utilisation and smoothen their cashflows. Prohibiting access to funding will undermine operations, curtail growth, result in shortages of goods and price escalation.

You should also read:

• Suspension of loans: Bank charges are going up, here’s why
• With lending suspended, banks will be okay but microfinance institutions likely to struggle
• 4% forex tax & withdrawal levy: Forever banishing the idea of banking USD
• RBZ on suspension of bank lending. Partly drawn loans are suspended too. What is the rationale behind these decisions?

The post BancABC distances itself from paper analysing the govt’s economic measures. Paper makes good points regardless appeared first on Techzim.

Everything is ‘with immediate effect’ with the Zimbabwean govt. Lending is unbanned as quickly as it was banned.

It was only 10 days ago that we were surprised to hear that the government was suspending lending in the country. The ban on lending was extensive, preventing all financial institutions from lending to any individual, corporate or even the government.

It was clear to all Zimbabweans that the economy could not operate without lending. We knew that businesses that rely on credit facilities would be affected and this would in turn pressure the government to lift the lending suspension.

Businesses respond

Soon after the suspension was announced, many businesses tweaked their operating procedures, announcing that they too were removing their own credit facilities. 

These businesses were only able to offer their customers credit because they had lines of credit from banks. So, a company like Surrey meats that offered restaurants/butcheries meat on credit could not continue to do so. 

Meaning in one fell swoop, the lending suspension cost banks interest revenue, cost Surrey and the customers they gave meat on credit sales revenue. It was a snowball effect. All companies in the chain were affected and it is this impact that the government underestimated.

Surrey announced they were no longer in a position to offer credit terms with immediate effect. Many other companies made the same decision. Even Tongaat Hulett announced that they would not be able to offer farmers any advance payments. 

It is with regret that the millers advise of the immediate suspension of advance payments until further notice.We normally fund the advances from loan proceeds that we access from the banks. Following the recent suspension of lending by banks we find ourselves unable to continue offering advances.   

Tongaat Hulett

When we covered the lending suspension we noted that it appeared that in the government’s desperation to catch the economic hitmen responsible for the ZW$ collapse they were going to leave too many casualties.

Even the farmers that are more or less carrying the Zimbabwean economy were immediately affected by their economic measures.

Luckily for us, the government swallowed its pride and lifted the lending suspension after only 10 days. 

Lifting of lending suspension

PRESS STATEMENT  

UPLIFTMENT OF TEMPORARY SUSPENSION OF LENDING BY BANKS 

Further to the circular the Reserve Bank of Zimbabwe (the Bank) issued to banks on 9 May 2022, the Bank wishes to advise the public that the temporary suspension of lending services by banks has been lifted with immediate effect. The lifting of the suspension does not apply to those entities that are under investigation by the Financial Intelligence Unit (FIU) for abusing loan facilities to the detriment of the economy. The FIU has accordingly advised all banks of the affected entities. 

RBZ

It has been an embarrassing 10 days for the RBZ and the government. It started with them having to make some exceptions to the blanket ban only days after announcing the ban.

“Those trading in key commodities such as tobacco, maize, sugar cane, soya bean and other related products are exempt from the suspension of lending facilities by banks,” came the clarifications as they tried to backtrack from their ill-advised ban.

Now, the ban is lifted for everyone except those under investigation but this is not a win for the government even if they catch the speculative borrowers they were after. It may have only been 10 days but our biggest problem in Zimbabwe remains that of trust.

The quick backtrack is not a win

The RBZ and the government recently revealed that they understand that the most important job they have is to build back trust. Uncertainty is probably the biggest hindrance to Zimbabwe attracting both foreign and domestic investment. 

We have woken up to drastic economic measures in this country one too many times. The govt loves surprising us with statutory instruments and RBZ directives and this makes it risky to operate in Zimbabwe.

The govt saw fit to outlaw a sector’s core business activity with no warning and I wonder how that is supposed to instill confidence in the economy. 

The crazy part is that backtracking on that decision makes it worse – it appears to outsiders that they made that decision on a whim and did not think it through.

If you were surprised when Standard Chartered announced that they will be exiting Zimbabwe, the events of the last 10 days should open your eyes. I imagine that all the other banks will be holding back on any investments as they realise that not even they are safe from disruption by the government.

Zimbabwe is a joke sometimes. Anyway, if you’re fortunate enough, go forth and get that loan you need.

You should also read:

RBZ finally identifies actual cause of Zimdollar collapse but maintains old measures

RBZ on suspension of bank lending. Partly drawn loans are suspended too. What is the rationale behind these decisions?

With lending suspended, banks will be okay but microfinance institutions likely to struggle

The post RBZ lifts suspension of bank lending with immediate effect. Talk about volatility appeared first on Techzim.

They say extraordinary problems call for extraordinary solutions. In April 2022 the government of Zimbabwe shocked the world when they barred banks from lending. They assured us it was the only way to deal with the currency manipulation which was (is) rapidly devaluing the local currency. 

The ban did not last long, in 10 days time banks were allowed to go about their core business again. However, a few companies were barred from accessing loans as the govt investigated their business practices further. 

Those investigations were completed and let us look at what the government found out.

Outcome of investigation of abuse of commercial bank loan facilities by certain business entities

The FIU has completed investigations on possible abuse of loan facilities by 15 entities and has made the following findings:

1. The majority of the entities investigated have adopted business models based on arbitrage, whereby they make significant profit margins by borrowing at concessionary terms, stocking and then selling their products in US$ or in Zw$ at inflated parallel market exchange rates, thus enabling them to easily pay off the loans from a portion of the proceeds, and start the borrowing cycle again.

This is a problem the govt and the Reserve Bank of Zimbabwe created. All this comes from their insistence on maintaining the forex auction. They can call the parallel market exchange rate ‘inflated’ all they want but it is closer to the actual position than the auction rate.

The arbitrage opportunity only exists thanks to the disparity between the auction/willing buyer willing seller rates and the parallel market. Should the govt liberalise the official markets we would have one exchange rate, killing the arbitrage opportunity.

Does this excuse the businesses taking advantage of the situation? No. What started as a means to hedge against a fast depreciating ZW$ later became a business model. That cannot be defended.

However, we have to remember that these businesses need forex and do not get all that they need from formal channels. These businesses supplement the forex they get from operations, forex auction and bank loans with purchases on the parallel market.

If they don’t price their products using the ‘inflated’ parallel market rate they won’t be able to restock. See, these businesses have to accept the fast depreciating ZW$ and if they don’t mark up their prices accordingly, inflation will make restocking a problem.

2. Most of these entities generate significant revenues, in either ZW$ or US$ or both, which are sufficient to cater for their working capital requirements. Instead of using their own revenues, they opt to fund most of their working capital requirements from the concessionary loans.

The financial model we adopted glorifies credit. Every businessman worth their salt has read countless books advising that using your own money when you can get credit is stupid. So, I don’t understand why the RBZ is highlighting this. It’s not a secret that most businesses strive to be in that position.

3. Some of the entities investigated abused their access to loans by “multi-dipping” across several banks. In one example, an entity concurrently accessed ZW$6.5 billion worth of loan facilities from 12 of the 16 banks. Many other entities would have loan facilities running simultaneously at 5 or more banks.

Need I repeat myself. Whoever was managing these companies was doing a great job in the context of the financial model we use in Zimbabwe. Not to mention the currency situation which makes the 12/16 company my hero.

If banks were doing their due diligence and figuring that these overly leveraged companies were good for the loans then it was all good in my book. 

We talked about the improving credit rating in Zimbabwe and one hopes the 12th bank that lended to that one company at the very least knew that their customer had loans from 11 other banks. 

That said, it is ridiculous that one company would get loans from almost all banks whilst most of us had the loan door shut in our faces. Just saying.

4. There were instances, where the entities investigated, would access loans for their own working capital, but in reality for the benefit of third-party entities either within the same group or unrelated. There were also instances where a holding entity, with little or no operations of its own, would borrow heavily for subsidiaries, who themselves would be accessing similar cheaper loan facilities directly from the banks. Such arrangements are a form of abuse of the financial system for material benefit by taking advantage of cheaper borrowing and repaying when exchange rates have been depreciated.

I’m confused now. I thought business was all about taking advantage of cheap borrowing. I thought the public company only existed because of this – access to cheap finance. 

We have long known that businesses only borrow from banks because it’s impractical to raise funding from shareholders for everything. Also, raising from shareholders results in share dilutions and what not. 

Banks were a source of funding in spite of their high costs. Then the RBZ’s monetary policies somehow resulted in banks becoming a cheap source of funding. I can tell you right now, very few businesses would have bothered with going public if they could have raised funding from banks on the cheap. 

In all this, the RBZ comes out blaming the businesses that have taken this route of abusing the system. Essentially saying, ‘we know that there is this source of cheap funding but please don’t adapt to this new economic development.  

Who’s fault is it that the system is broken in the first place?

5. In some cases, loans were accessed as working capital, but diverted to third-party entities for purposes of funding purchases of foreign exchange on the auction on behalf of the funding entities.

This goes back to the arbitrage opportunity created by the RBZ-influenced forex action rate being significantly lower than the people’s exchange rate. 

I know it is ‘frowned upon’ to use borrowed funds for purposes other than those for which you borrowed. That behaviour introduces risk to the lender that they didn’t factor in when they decided to lend. 

No one wants to lend to someone thinking they are going to use the funds to restock their tuckshop only to hear they used the funds kumabhiza (gambling). 

So, I agree that it was wrong for the businesses to divert borrowed funds to other uses. However, to be frank, I think the banks didn’t mind this. Mainly because companies that used the borrowed funds to deal in currencies would be in a better position to repay those loans than companies that used the borrowed funds to clear salary arrears.

The RBZ’s solutions 

(i) No bank shall extend a loan to an entity or individual at an interest rate below the prevailing Bank policy rate. 

Okay, this removes one area banks could have a competitive advantage but few should have problems with this solution.

(ii) Banks shall implement appropriate due diligence measures to ensure that borrowing by holding entities on behalf of their subsidiaries are properly justified and that the loans are used strictly for the intended purpose. Banks shall implement similar measures in the case where an entity borrows on behalf of an associated entity.

Another reasonable measure. I think neither the lender nor the borrower are ecstatic about it but it’s a fair measure. I don’t know if the banks that have been stripping their staff can implement the due diligence needed to ensure loans are used for the intended purpose.

(iii) Banks shall also –

(a) ensure effective credit risk management, including loan monitoring and enforcement of loan covenants, client visits and other measures to ensure that borrowings are used for the intended purposes; and

(b) ensure compliance with the prescribed prudential lending limits provided under the Banking Regulations SI 205 of 2000, and more particularly that:

-the aggregate of loans and advances outstanding at any time or any single obligor shall not exceed 25% of a banking institution’s capital base; and

–the aggregate of loans and advances outstanding at any time to any corporate group shall not exceed 75% of a banking institution’s capital base or 25% of any single member of such corporate group.

This is huge. The RBZ is implying that some banks were flouting these regulations. I wholeheartedly agree that banks should adhere to these limits. It is too risky to have one company hold 25% of all of a bank’s loans. A bank cannot be in the position where just one company defaulting leads to financial ruin.

We can’t have goldfish memories. We have seen some banks close shop in this country as a result of these kinds of lending practices. No matter how you square it, a bank disbursing 75% of its loans to one group is just nuts. 

I know that it can be tempting to go with companies Econet, Delta and Innscor and ignore the riskier Museyamwa companies but even though it’s highly unlikely that the blue chip companies would default, it’s unwise to be tied to their performance to that extent.

(iv)The FIU shall monitor transactions on an ongoing basis to ensure that loan proceeds, as well as entities’ own revenues, are not diverted to the illegal foreign exchange parallel market and to take punitive action where abuses are identified.

(v) Whilst the suspension of lending to the investigated entities has been lifted with effect from 17 June 2022, any entity found to have actively engaged in exchange rate manipulation in order to derive illicit gains from loans shall also be referred for prosecution.

(vi)Boards of directors should enhance oversight on the management, reporting and performance of large exposures and group exposures.

(vii) The Bank will continue to monitor the effectiveness of banking institutions’ credit management practices and compliance with applicable laws and regulations.

Well done by the RBZ

I gotta say, I think the RBZ’s measures are reasonable. After the whole bank lending suspension we knew to expect anything from them but this time they surprised us in the right way. These measures are just prudent practices that banks should have been following anyway.

However, it should be mentioned that the findings they reported make it look like the drastic measure of banning bank lending for 10 days was not worth it. To be honest, most of their findings were pretty apparent to anyone with paying half attention to the Zimbabwean economy.

Seriously, we all could have told the RBZ that companies do not only borrow because their revenues can’t meet their working capital requirements. We didn’t need to ban bank lending to find that out.

In addition, the RBZ is working under the assumption that the forex auction and willing buyer willing seller policy are working as intended and that they reflect the accurate economic position. They blame those who take advantage of the arbitrage opportunities brought about by their policies.

Therefore the measures presented are flawed on arrival, they are band-aids and will do little to address the broken bones beneath the skin.

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Let us consider all that the Reserve Bank of Zimbabwe has told us about the coming gold coins. When we do that and also look at alternatives available to would-be buyers, the picture is clear. At least clear to me. There is one major group of people meant to buy the coins.

The RBZ made it clear that the main reason the gold coins exist is to be a store of value. The question then becomes, a store of value for whom?

Each gold coin costs US$1,622

Zimpricecheck went into detail about how we get to that valuation here. Each coin will weigh one troy ounce (approximately 31 grams) and will be of 22 karat quality. Using a per gram price of US$52.14, the math works out to US$1,621.74 per coin.

You can use a different per gram price but if it’s from a free and relevant market it will be in the 50s. So, we can work with a range of $1600-1700 per coin.

That means we are looking to store value for the minority in the country. Very few ordinary Zimbabweans have US$1,600 or its equivalent just laying around. It was clear before we even knew how much the coins would be worth, they were meant for the wealthy few.

That raises the question, what then should we make of the claim that the coins are meant to curb the nation’s demand for the US? If the majority of Zimbabweans, who collectively make the huge parallel market work, cannot partake in the gold coin game, their USD demand remains intact.

It’s almost as if it is not the average Zimbabwean they had in mind. It will be clear that that’s the case by the end of this.

Easy tradeability

Off the bat, the fact that the RBZ is using the troy ounce betrays the kind of use they foresee or plan for. In gold trading circles the troy ounce rules but in Zimbabwean day to day matters, the metric system with its grams and kilograms is king.

Why are we following international standards if not to allow for easy trade across the globe? That has nothing to do with storing of value methinks.

Yes, I understand that easy tradeability/liquidity makes for a good short to medium term store of value. If you can’t extract the value quickly in time of need then what was the point of storing it?

However, are we looking to allow Zimbabweans to store value in the coins locally or what? You can’t tell me that using the troy ounce allows for easy price discovery when the per gram price is just as easy to determine.

You also can’t tell me the minting processes at Fidelity were constructed with the troy ounce in mind. That could be valid but I still don’t want to hear it.

We are just purposefully making it easy for smugglers to ship out every single coin should international prices rise enough, which will probably happen with the high inflation rates across the globe likely to lead to the price of gold spiking.

We shall be forced to conclude that this is a feature not a bug.

The stock exchange

The Zimbabwe Stock Exchange became a good store of value for corporates and high income earners. They started ‘investing’ on the ZSE just to preserve the value of their millions. They knew they could liquidate their shares farily quickly should the need arise.

In the process, some realised they could turn nifty profits trading shares. The govt says this speculative trading fuelled depreciation of the ZW$.

The govt of course stepped in and stopped all that jazz. They increased tax on shares held for less than 270 days. Making shares unsuitable as a liquid store of value.

The ZSE is up 77% from December 2021 but inflation has roared louder and when that is coupled with the higher tax should one sell their shares within 9 months of purchase, what can one do to preserve value?

The gold coins had to become reality.

Infrastructure projects

We talked about how many economists and businesspeople becried that beneficiaries of huge infrastructure project tenders were flooding the market with ZW$, tanking the exchange rate in the process.

The govt promised to double 2021 infrastructure spending in 2022 and I think that’s one major factor in the accelerating depreciation of the ZW$ this year.

So, while the govt scolds us for buying hundreds of USDs on the parallel market, they turn a blind eye to their infrastructure building partners mopping up millions, maybe even billions of USDs.

So, we can see that the govt is not contradicting itself when it says the gold coins are meant to ease USD demand. They know that most of the demand actually comes from these large contractors. The general public’s collective demand pales in comparison.

Not to pick on them but a number of Chinese companies are involved in big infrastructure projects in the country. They are paid partly (mostly?) in ZW$ but they can’t take our worthless currency back to their motherland and so they do the sensible thing and exchange them for USD.

Problem is they can only do so on the parallel market, which is illegal. That’s easily dealt with. China gifts the govt a new parliament building and extends loans to them and voila, the Zim govt is literally blind to see what some Chinese companies are doing.

Gold for the Chinese

Of course, other fatcats can also benefit, even some working for the govt itself. That’s just the cherry on top.

I think we chose the troy ounce to allow our partners, the Chinese, to easily repatriate their profits. So, you can see that it’s laugable to complain that the average Zimbabwean cannot afford the gold coins. The actual targets can easily afford the coins.

So, all this talk about the average person not being able to verify the authenticity of the gold coins is a waste of time. The average person is not invited to the party. Too few average people will be looking to buy the coins, meaning our fears that people will be swindled left, right and center on the streets are overblown.

Look at it from the govt’s point of view, the new parliament building needs to be paid for one way or the other. This helps keep our foriegn overlords happy.

We are paying dearly to keep our friends on the table, we sacrifice our economy’s health, we gift them all our natural resources and award them all major infrastructure tenders. Are we getting an equivalent return?

Arbitrage opportuities abound

We are all out of voices now from shouting about how the forex auction creates arbitrage opportunities that only a few connected people can take advantage of. Yet the auction remains.

Their solution is the willing buyer willing seller (WBWS) forex market that cannot be called an open market by any strecth of the imagination. It remains an exclusive club that a few, including our Chinese friends, can access.

Reminder, when we talk about arbitrage here we are becrying the situation where a product is available on two different markets at two different prices. If one has access to both markets, they can simply buy from the market with the lower price and sell on the market with the higher price.

The gold coins will be purchaseable using the ZW$ but to determine what the amount will be in our local currency we will use the WBWS rate. The WBWS rate is artificially low because it’s not an open market.

Here is what happens with the gold coins

Let’s paint the picture, the gold coin can be sold on international markets just as it can be sold locally. Gold remains gold and there is a ready market for it.

You can sell a troy ounce of gold, the coin, for US$1,622. That would be equivalent to ZW$1,167,840 on the black market. Meaning if you buy the coin using the ZW$ and immediately sell it for US$1,622 you make a profit of ZW$527,145 (1167840-640695).

In USD terms that’s equal to US$732. My friend, that is nuts. All one needs to do is convert their USD to ZW$ on the black market, purchase the coin using ZW$ and then sell the coin for US$1,622.

It will go down to how quickly one can sell the coins. Not many have a gold buyer in their contacts book. We’ll know them soon enough though. They will be on the corners with the forex traders yelling ‘tochinja goridhe here blaz?’

There will probably be a limit on the number of coins a walk in citizen can purchase so the unconnected gold buyer will have to rely on us for supplies.

So, while on paper all of us can take advantage of this arbitrage opportunity, I foresee obstacles that will make it impossible for you and I to get a piece of the action. Much like how I can, on paper, get USD for the cheap on the WBWS exchange, however in practice I cannot.

What a crazy little country

You might be thinking you’ll surely be able to get at least one gold coin so you can sell it and retire. I would remind you that this is the Zimbabwean govt we are dealing with here. You might end up buying a 5 karat gold coin, much less in value than the 22 karat we have been told is coming.

So, unless you can verify otherwise, work under the assumption that there could be something wrong with the coins.

Anyway, what do you think about all this? Let us know in the comments below.

You should also read:

RBZ gold coin: Who can get one, can it buy anything & everything else you need to know

Lithium is used in phone and car batteries and Zimbabwe has lots of it. You should know who stands to benefit from it

Govt says willing-buyer-willing-seller for forex but it’s more like fortunate-buyer-unwilling-seller

Zim govt introduces gold coins which could be a game changer, commitment to multicurrency regime commendable too

The post I think I know who the gold coins are actually for and it sickens me appeared first on Techzim.

At this point, it’s now old news that our economy and the currency are not doing so well and a clear sign of that is basic goods and services cost more than the amount of money you are allowed to extract from your bank account.

Zimswitch has announced new Zipit limits for person-to-person payments. Single transaction limits have been moved from ZW$25 000 to ZW$$100 000 with monthly limits having been bumped up to ZW$400 000 from ZW$100 000 back in June. This review will take effect on the 1st of August 2022.

Customer Notice
ZIPIT LIMIT REVIEW
Dear Valued Customer,

Please be advised that the ZIPIT person to person transaction limit has been reviewed from ZWL$25,000 to ZWL$100,000 with a monthly limit of ZWL$400,000 effective 1 August 2022. In other words, an individual may now opt to send up to ZWL$100,000 per single transaction but ultimately being governed by the maximum limit of ZWL $400,000 per month.

The ZIPIT functionality is available on the following options:
1. ZIPIT from any Bank to all Mobile wallets,Ecocash,OneMoney,Telecash and MyCash
2. ZIPIT from all mobile wallets to all banks.
3. ZIPIT across all banks.
4. ZIPIT across all wallets

CONTACT US:
+263 242 746 620 I +263 242 776 742
info@zimswitch.co.zw
zimswitch.co.zw

Also Read:

• ZIPIT monthly limits increased to $400,000

The post Zimswitch raises Zipit limits appeared first on Techzim.

You know the drill. Inflation is roaring and prices appear to be changing every day. Couple that with transaction limits on our preferred payment platforms and you can find yourself unable to pay for stuff, even when you have the money.

Yesterday, it was Zipit raising its limits, today it is EcoCash’s turn. EcoCash has been sending out the following text:

Send Money ZW$50k/transaction up to ZW$280,000/month or per day. Merchant & Bill Pay is ZW$100k/transaction up to ZW$400,000/month or per day.

Sending money to a friend? You can now send up to a maximum of ZW$50,000 per transaction. 

The monthly limit is now ZW$280,000 but you can spend it all in one day, however you will have to transact multiple times because remember, a single transaction cannot exceed ZW$50,000.

If you’re paying for stuff, the maximum on merchant/ bill payments is now ZW$100,000 per transaction. You can only have four such transactions a month as the monthly limit is only ZW$400,000. Same as for Zipit.

Are these even increases?

The black market is fast approaching 1:1000 and here we are limiting people to ZW$400,000 per month. Using the black market rate, we are limiting people to less than US$450 per month. Even if we use the bank rate, that is only US$880. 

One could argue that the average Zimbabwean does not make, let alone spend that much in a month. I imagine that’s how the regulators came up with that figure. 

However, we have to remember that the high unemployment rate in this country has necessitated that everyone become an entrepreneur. People are trying to use these accounts/wallets to run their small informal businesses. 

Are we to expect businesses to run with a cap of US$450. We recently found out that 64% of Micro, Small and Medium Enterprises in this country do not have bank accounts. So, services like EcoCash are essential.

But with a cap of US$450 on bill/ merchant payments, is it any wonder then that the informal economy has largely moved on from the formal financial sector. 

Also read:

Zimswitch raises Zipit limits

The post EcoCash transaction limits revised upwards, still low appeared first on Techzim.

The Zimbabwean government is considering adopting a central bank digital currency (CBDC). The Reserve Bank of Zimbabwe (RBZ) has been researching this for a while now. If you thought they were joking you might want to think again.

In the Mid-Term Monetary Policy Statement released on the 11th of August, the RBZ updated us on the progress that’s been made so far.

The RBZ has “conducted study tours to countries that are advanced in CBDC endeavours and has developed a roadmap for adoption of CBDC in Zimbabwe.”

They sound serious. So, you might want to familiarise yourself with what CBDCs are all about. They are not a trivial issue, they will affect you personally, whether you like it or not. More so than the gold coins that were introduced late last month.

The gold coins are having their impact on the economy but you’re probably not involved in all that. You won’t be able to check out of using CBDCs.

Read this to understand what CBDCs are: Zim govt looking at central bank digital currency, what is that and why won’t it fix our problems

Now that we all have an idea what CBDCs are, let us look at where the RBZ is in the process of introducing them.

Consultation paper

The RBZ has developed a consultation paper on CBDCs and will be releasing it soon. In Zimbabwe we are accustomed to world shattering announcements being made Nicodemously. Statutory Instruments usually come with no warning.

When it comes to CBDCs we are thankful that the whole process has been transparent. We know they are coming and now we are being given the opportunity to voice our thoughts on them. Let us not waste this opportunity.

I know the cynic in you is screaming, ‘this is a waste of time, it’s just for the show, they won’t actually consider what we have to say.’ The same voice is drowning my thoughts right now. However, what do we have to lose but time? Let’s take the RBZ at its word for once and participate.

Says the RBZ,

The consultation paper is aimed at fostering a broad and transparent public dialogue regarding the potential benefits and risks of CBDC. The public will have a period of 90 days from the date of release to submit their comments to the Bank.

Quote taken from mid-term monetary policy statement

We will do our part and make sure we help alert you when the consultation paper is released.

The consumer perception survey

That’s not all. The RBZ will also be carrying out a consumer perception survey on CBDC. What? Could this be the RBZ realising that without public buy-in, even okay measures will fail?

That voice again is screaming, ‘we let them know in no uncertain terms that we didn’t want the bond notes/gold coins/[insert other contentious govt innovation], and they ignored us.’ Ye of little faith. Have you not heard that the n-th time’s the charm.

It’s better to try and be ignored than to never try. As the kids say, you miss all the shots you don’t make. So let’s shoot our shot my fellow Zimbos. Participating in a survey should not be too difficult to do.

We shall make sure to tell you when the survey work starts.

The central bank says it will use findings from both the consultations and the survey to craft pilot programmes related to CBDC. If all goes to plan the people’s voice will help shape everything up.

There are those among us that understand the CBDC and blockchain world and we need you to step up.

The post The RBZ invites dialogue on coming digital currency (CBDC), you have to be a part of this appeared first on Techzim.

Apparently, the Harare Institute of Technology (HIT) is developing a central bank digital currency. HIT Vice Chancellor Dr Kanhukamwe revealed this at the graduation ceremony held at their campus a few days ago.

This raises a lot of questions. We have covered what central bank digital currencies (CBDCs) are and you will recall that they are essentially just a nation’s currency in digital form. It is the central bank that is liable for the currency.

So, it is quite strange to hear an organisation that is not the central bank say they are working on a CBDC. It still would have been strange had they said they are working on any currency.

The govt does not take kindly to those who would mess around with currencies. Try announcing you are working on a currency yourself and see how quickly you will be shut down.

Could this mean the Reserve Bank of Zimbabwe is working with HIT to develop a CBDC? Could be.

What we know is that the RBZ seems serious about CBDCs, even having a roadmap for deployment. We are still waiting for the consultation paper they said is coming.

Selling the President on CBDCs

At the HIT ceremony where they revealed that they are working on a CBDC, the President was in attendance and the HIT VC sold him on the benefits of CBDCs. At this point, I’m convinced that we will be seeing a CBDC in this country. Here’s what the VC had to say,

…It has the capacity to reduce significantly the regulatory costs for central banks thus reducing the transactional costs that will ultimately reduce the costs of service. As a result, there is significant reduction in fees.

Therefore banking the unbanked will boost the business for the small and medium enterprises as they increase chances of ordering finance. The technology will reduce the printing of money as we work towards a digitalised economy by 2030. Digital currency has the capability of eliminating currency manipulation, hoarding and fuelling of black market currency trading.

That was a brilliant pitch by the HIT VC. He knew his audience and said all the right things. President Mnangagwa’s administration has often complained about economic saboteurs manipulating currencies and crashing our beloved ZW$. So, to tell him that CBDCs are the solution he has been looking for is brilliant.

I imagine the RBZ governor got a call after the HIT ceremony along the lines of, “Iwe Jonso taapapi nezvimaCBDC zviya?” I too wonder where we are with those CBDCs.

It’s a good pitch but is it true?

He says CBDCs will help eliminate currency manipulation. That is possible. With CBDCs, the RBZ will have more extensive data on the movement of funds in the economy. This should make it easier to spot any anomalies.

This greater oversight by the RBZ scares me a bit too. It can be misused. It’s a double edged sword, the RBZ getting greater control could help in coming up with and tracking progress of monetary policies. On the other hand, we are talking about more control for the RBZ. Do we really want that?

We talked about these matters before. If you don’t know what those CBDCs are all about, the following articles should get you up to speed.

Zim govt looking at central bank digital currency, what is that and why won’t it fix our problems

The RBZ invites dialogue on coming digital currency (CBDC), you have to be a part of this

The post HIT is developing a central bank digital currency (CBDC), are universities making currencies now? appeared first on Techzim.

Remember a time when a number of cryptocurrency startups in Zimbabwe were banished from existence? And it was by the RBZ. Okay to be fair some of them were not as sound as anyone would have liked but the manner in which they were disbanded was pretty harsh. All the while in South Africa there were cryptocurrency ATMs and recently Pick and Pay SA announced that it now accepts crypto for groceries.

But they have been warming up to the idea of cryptocurrency. Zimbocash was allowed to operate after it had sorted out its KYC side of things. The central bank even opened up a Fintech Sandbox for startups looking to explore blockchain technology. Cryptocurrency was not part of the sandbox though which was a bit of an anti-climax. However, in a tweet, the RBZ announced that they are now very interested. So much so that they need your input on it.

As part of efforts to explore Central Bank Digital Currency (CBDC), the Bank is conducting a Consumer Survey on CBDC. Your response is important. Follow this link to complete the survey https://forms.office.com/r/WZsyGqZCv7 Kindly respond by 7 December 2022.

RBZ Twitter page

What is a Central Bank Digital Currency (CBDC)?

Central Bank Digital Currency (CBDC): A Central Bank Digital Currency is a digital representation of a national currency issued by the central bank for use by the general public. It should be noted that CBDC will be a complement to existing payment options in the country such as cash, mobile money, and bank cards, among others.

RBZ CBDC Consumer Survey

Essentially it’s going to feel like ZIPIT to a lot of people in how it works. It will be the same Zimbabwean dollar allowing you to perform the same transactions you already could perform with your bank or mobile money wallet. From a use case point of view it, according to the RBZs definition, is going to work the same way as current payment options.

What could be different is how it operates in the background. The underlying technology in most cases is based on blockchain technology. It’s simply a technology that uses trusted parts of the network to verify every transaction on the network. This ensures transparency on every transaction made on the network. I am giving an oversimplified definition but you can click here if you want to go deeper down that rabbit hole.

Who else is doing CBDCs?

Nigeria was the first African country to issue a CBDC that they dubbed the e-Naira in October 2021. A year after its launch, 700 000 transactions have been made using the e-Naira. It’s a pretty small figure when you compare it to 1.4 billion transactions on Nigeria’s NIBSS Instant Payment system. Granted it’s a new technology and still in its pilot phase but this will probably be the trend in Zimbabwe.

According to the CBDC tracker, only 2 countries have fully launched CBDCs. Jamaica and the Bahamas. In Africa 15 countries are at different stages of development of their CBDCs. Nigeria (e-Naira) and Ghana (e-Cedi) are the only countries whose central banks rolled out pilots of their CBDCs. The other 13 countries, Zimbabwe included, are still in the research phase.

So CBDCs are still very new on the scene and still far from their final form. What is interesting is that since a CBDC is in a sense a form of technology, it can be developed to suit the characteristics of the economy the central bank operates. The hope then is it can do a better job of addressing the shortcomings of already existing payment options in the respective economies. Kudos to the RBZ for crowdsourcing ideas on the development of our CDBC.

Also Read:

• 2022 MPS wrap: Mobile money limits, crypto, remittances & more
• Botswana passes crypto bill, unlike Zim they want to stop the scams

The post RBZ needs your help with the development of a cryptocurrency. Just 33 questions appeared first on Techzim.

The loan space in Zimbabwe has been pretty rough for the common man for a while now. Whilst bankers and formally employed individuals with healthy bank statements could have loans availed to them, it’s not the case with the majority of either self-employed or informally employed citizens. The RBZ wants to come in and change that with Collateral Registry. Let’s get the Collateral side of things out of the way.

What is collateral?

something pledged as security for repayment of a loan, to be forfeited in the event of a default.

Oxford Languages Dictrionary

Whenever you wish to take a loan, the lender which is usually a financial institution like a bank will need a guarantee that they can recover their money back with the interest as per your agreement with it. This guarantee is usually in the form of immovable assets like a house, office, factory, school, etc.

But herein lies the problem. These are big assets that a majority of people do not have or own. However, there was still a way to get loans even if you didn’t have these assets. You had to be formally employed or a civil servant. That way, the bank can easily get its loan repayments via direct debits from your bank account whenever you get your salary.

For the rest of those informally employed it meant ensuring your bank account has a healthy cash flow statement. This is easy if you are dealing with electronic money but a number of SMEs are now cash businesses and rarely bank the cash. The RBZ feels this section of the population should not be left out. They can submit details of their assets to the Collateral Registry and be able to grab loans.

How does the RBZ Collateral Registry work?

It’s a database where movable assets are going to be listed for purposes of collateral. That said collateral will be used to work out the size of the loan you are eligible for. The general public can also access the registry to see if an asset they are about to purchase is not currently being used as collateral for a loan that’s being serviced.

The Collateral Registry is a publicly available database of interests in or ownership of movable assets tendered to secure loans. The Registry facilitates secured creditors or to lenders to register security interest in movable assets such as livestock, household goods, crops, business stock and accounts receivable while providing the public with a notice of the existence of such security interest.

RBZ Collateral Registry Pamflet

Some FAQs

• Use of someone else’s assets as collateral for a loan is possible. There just had to be written and signed consent by the owner of the asset and the borrower to the lender of the arrangement.
• Pooling of assets by multiple individuals is possible so as to obtain a higher-value loan. Again these assets can either be individually owned by each participating party or co-owned by multiple parties.

To be clear, it is not the RBZ that will be issuing out the loans. This will be the duty of the lending institution. The RBZ will only be managing aspects of the Collateral Registry. Terms of loans will be dictated by the lending institution which can be banking institutions, deposit-taking microfinance institutions, credit-only microfinance institutions, savings, and credit cooperative societies
and other secured creditors.

Who can have access to this registry?

Access to the Collateral registry is classified into 3 groups. The borrower, the lender, and the general public. And here are the available rights as stated by the RBZ. You can view the full document by clicking here.

The Borrower

• Increased access to credit
• Enable MSMEs to leverage their movable assets to obtain credit for growth.
• Reduced cost of credit in the long run.
• Legal protection on property accepted as collateral.
• Continued use and employment of collateral to realise value.
• Allows borrowers to prove their creditworthiness.
• Springboard to move from informal to formal financing

The Lender

• Remote access to the system
• Reduced costs of loan administration.
• Enhanced access to information on borrowers thereby reducing information asymmetry.
• Reduced scope of over-borrowing by clients.
• Enhanced lender confidence.
• Diversification of lending portfolio.
• Increased non-bank financial intermediation.
• Clear rules of priority.
• Promotes prudent lending and risk management.

The General Public

• Can search the registry before buying goods to ensure that they are free from prior interests and are safe from being repossessed.
• Development of industries.
• Boost production and create employment: increased access to credit will increase productive capacity and generate employment.

Also read:

• RBZ needs your help with the development of a cryptocurrency. Just 33 questions
• Uhuru, the remittance via WhatsApp service gets RBZ approval to start testing

The post RBZ wants to make it easier to get a loan even if you are not a civil servant with the Collateral Registry appeared first on Techzim.

Al Jazeera released the first of four parts to their explosive documentary on corruption and looting in Zimbabwe yesterday. Titled ‘Gold Mafia’ the documentary exposes the dealings of some government officials, prophets, pastors, and businesspeople profiting from the illegal movement of gold.

Reactions to the docu have been mixed. Some feel Al Jazeera overpromised and underdelivered. They feel that all that Al Jazeera did was put names and faces to what we already knew was happening. I think it’s premature to think this, there are still three parts to go.

Some are rightly angry and disheartened by the revelations. Gold worth billions is being smuggled out of the country, depriving the country of much-needed revenue. I still grieve when I think about the $15 billion that went missing all those years ago and to find out billions are still leaking every year is maddening.

That may be but even among those that think the docu is enlightening, the question is ‘what does this mean for the country?’ Is it a big deal that we can put faces and names to the illicit dealings we all suspected were going on? Does this documentary have the same impact as a news story telling you that a man in Shurugwi stole a goat from his neighbour?

Govt institutions complicit in money laundering

The scariest part of the documentary is how the Reserve Bank of Zimbabwe, through its subsidiaries seems to be negligent when it comes to anti-money laundering and counter-terrorism financing, at the very least.

Some of the bad actors in the docu made it sound like Fidelity Printers and Refiners, an RBZ subsidiary, is available to them to wash dirty money with no questions asked. That will not fly with the international community.

Zimbabwe is already under sanctions but it could always get worse. As you know the sanctions are ‘targeted’ and our institutions are not under sanctions themselves. Of course, in reality, the institutions are affected by those ‘targeted sanctions’ as even Al Jazeera notes,

the nation faces a strict international sanctions regime, and even though its gold trade is not in itself banned by the West, the broader strictures against Zimbabwe make it harder to export the precious metal through official channels.

So, in some way, those sanctions are partly responsible for Zimbabwe having to turn to shady characters to get Zimbabwean gold on the market.

Anyway, as one former FBI agent interviewed in the docu admits, they would like to bar Zimbabwe from the global financial system completely.

If it can be proven that indeed Zimbabwe has been complicit in money laundering then that can be arranged. Here we are talking about sanctions being placed on our central bank and its affiliates.

Sanctions on the RBZ

The main aim of sanctions on a central bank is to prevent it from accessing its assets at private institutions and central banks outside its country’s borders. The central bank would not be able to make international payments or even supply its own country’s banks with forex in times of need.

Not being able to access those foreign reserves also has the effect of making it hard for the central bank to keep its currency stable. Zimbabweans don’t need telling what an unstable currency entails.

Looking at this, one feels that the RBZ being placed on sanctions would not be that big of a deal. World Bank data had Zimbabwe’s net foreign assets at -335 million in 2020.

The RBZ says it had foreign assets of ZW$423bn and foreign liabilities of ZW$2.9 trillion, for a net of negative ZW$2.5 trillion in September 2022. See RBZ Quarterly Economic Review for more.

This is partly to blame for the Zimbabwe dollar’s struggles. The ZW$ is useless on the international market and it would not be any either way with our central bank powerless on that market.

So, to have the negative balances above frozen does not feel like that big of a deal. Zimbabwe has pretty much had to operate outside of the global financial system anyway. Our banks have been losing correspondence partnerships even without the central bank under sanctions.

That’s not to say sanctions on the RBZ would not affect us at all. They would make a bad situation worse but probably not by much. I guess when you are already close to rock bottom, you don’t have far to sink.

You, personally, might lose out

That may be but at the personal level, we could have a lot to lose.

As we saw in Russia, we could have global players decide to exclude Zimbabwe. You know how PayPal already gives Zimbabweans a bad deal? We could end up with the likes of Western Union, Moneygram, Payoneer etc excluding Zimbabwe.

E-commerce players may be close behind them in leaving Zimbabwe. Imagine Amazon and eBay shutting us out. I don’t even know if Aliexpress would be able to keep serving us.

Then we could have Netfix, Spotify and the like pack up and leave too. Oh, now you care huh? What if Starlink ends up deciding Zimbabwe is too hot to handle? All of us a sudden it feels like a nightmare.

We only scratched the surface of what our institutions being placed on sanctions could mean. We are already in a tough spot, we could without more sanctions. So, yeah, the revelations in the Al Jazeera documentary are serious.

I understand the sentiment that says, ‘those implicated by the documentary will most likely not face any consequences.’ Instead, those doing the ‘exposing’ might be the ones to face serious consequences.

That reality makes people not care about the documentary. We should care though. As we discussed, we personally have a lot to lose out on. A bad situation could get worse.

What do you guys think? In what other ways could the revelations in the documentary end up biting us? Do let us know in the comments section below.

Also read:

Biden extended sanctions on Zimbabwe and revealed it’s all about safeguarding US interests

Crypto undermining power of the West to cripple economies through sanctions – Ukraine-Russia war shows

The post RBZ could face sanctions following Al Jazeera documentary. That’s a big deal appeared first on Techzim.

The Reserve Bank of Zimbabwe (RBZ) must feel like, ‘damned if we do, damned if we don’t.’ Whatever they do attracts negativity, even when it really shouldn’t. I understand why that is though.

The RBZ has a lot to atone for and until the masses believe it has cleansed enough blood from its hands, it will be attacked for curing cancer.

The RBZ announced that it would be introducing a gold-backed digital currency. The digital gold tokens so issued will be backed by gold held by the RBZ and will be used as legal tender in Zimbabwe.

You won’t believe the vitriol they are getting for that. Well, you will believe but it’s still something to behold.

Isn’t a gold-backed digital currency something Zimbabweans would want to get behind? Let’s talk about it.

Gold coins

The RBZ introduced the Mosi-oa-Tunya gold coins in mid-2022. We applauded the idea of gold as a currency instead of the fiat Zimbabwe dollar that continues to tumble.

Trust in the Zimbabwe government determines the value of the currency it issues. Trust in the Zimbabwe government is nearly non-existent, so there is no surprise that no one trusts their dollar. Not its own citizens and certainly not the international community which won’t even accept that funny currency.

Trust in the value of gold is not dependent on the Zimbabwe govt’s actions or misactions. Not even the Gold Mafia can affect gold’s value across the planet. That shiny metal has had value for centuries and no group of thugs are going to undo that.

With that backdrop, we welcomed the gold coins.

There was one major problem though. The coin was not meant for everyday Joes and Jills like us. With a single coin costing over US$1000, it was obvious that the gold coins were to be a store of value for the fortunate, the mbingas of Zimbabwe.

We decried that fact and the recently announced gold-backed tokens are the answer we cried for then?

Digital gold tokens

The RBZ is introducing a currency that is backed by gold. Meaning if you have a note (a digital token in this case because there won’t be a physical representation) you have a claim to real gold in some vault somewhere.

For those of you who were old enough to have used the old Zimbabwe dollar you may remember that there was an inscription on the notes that said, ‘I promise to pay the bearer on demand…’ That was a relic from a time when currencies were really just IOUs, with the real money being the gold stored somewhere.

Zimbabwe is going back to that beautiful time before mere paper was money.

We are doing away with paper and saying, we will issue tokens that are essentially IOUs from the govt to the bearer. To say whoever has that token is entitled to gold in their vaults.

That all sounds good but there is a key difference between these tokens and the Mosi-oa-Tunya gold coins.

Gold coins vs digital gold tokens

The history of money tells us that those who were supposed to be safeguarding the people’s gold and ensuring that every single IOU (note) really had gold to back it up ended up giving out more notes than the gold supported.

That’s not a problem with the gold coins. There, you literally hold the gold yourself or have some other bank hold it on your behalf.

With the digital gold tokens, you don’t actually hold the gold and so you have to trust that the gold backing that token really exists.

That changes everything in my opinion. We are back to that dirty word – trust. Do I trust that the RBZ will indeed hold the gold that backs those digital gold coins? I find that I am a man of little faith. I do not possess such trust in the RBZ.

That is what may be the undoing of an otherwise good idea.

It is impractical to have tiny gold coins for values as small as US$10 and so if you are to hold $10 worth of gold, it will have to be a token. So, the RBZ is right to play it this way. Too bad a token requires some level of trust, which will be a difficult ask for many I presume.

Digital gold vs ZW$

The RBZ governor announced that they noticed that demand for foreign currency is driven not only by the need to import goods and services but also by the public viewing it as a store of value.

I’m amazed he says they ‘noticed’ this. It didn’t need noticing, it has been so in our faces as the reality, it didn’t need noticing.

Anyway, digital gold coins are supposed to be an alternative to the USD for the masses. Instead of everyone flocking to the streets to convert whatever ZW$ may fall into their pockets, they should consider getting a gold-backed digital token from their favourite central bank.

It is a hard sell but considering how getting USD on the streets is technically illegal, the digital gold should have takers.

This should lower demand for the USD and in turn, lead to the ZW$ firming up against the USD if the RBZ’s hopes come true. We shall see where the stick and the snot-apple fall.

Zimbabwe may be a tough economy to live in. What it isn’t is boring though. That may not be good for investors who crave predictability and stability but it is entertaining for the neutrals.

Do tell us what you think about the gold-backed digital tokens. Will you be deleting your forex dealer’s phone number and meeting your store of value needs using Mangudya’s tokens? Let it all out in the comments section below.

Also read:

Zim govt introduces gold coins which could be a game changer, commitment to multicurrency regime commendable too

I think I know who the gold coins are actually for and it sickens me

Zim govt looking at central bank digital currency, what is that and why won’t it fix our problems

The post The RBZ’s digital gold coins are a good idea but may be undone by just one word – trust appeared first on Techzim.

We talked about the upcoming digital gold tokens earlier this week. The Reserve Bank of Zimbabwe has now revealed when we can expect the innovative tokens. They are coming in 10 days’ time, on the 8th of May.

Here’s the RBZ’s circular on this,

ISSUANCE AND USAGE OF GOLD-BACKED DIGITAL TOKENS

Pursuant to the resolution of the Monetary Policy Committee (the MPC) on 28 March 2023 to complement the issuance of physical gold coins with gold-backed digital products, the Bank wishes to advise that it will be issuing gold-backed digital tokens with effect from 8 May 2023. The gold-backed tokens will be fully backed by physical gold held by the Bank.

As previously advised, the issuance of the gold-backed digital tokens is meant to expand the value-preserving instruments available in the economy and enhance divisibility of the investment instruments and widen their access and usage by the public.

The issuance and usage of the gold-backed digital tokens shall be in two phases as follows:

(i) Phase 1: Gold-backed digital tokens will be issued for investment purposes with a vesting period of 180 days and redeemable in the same way as the existing physical gold coins. The tokens will be available for sale, through banks, in both foreign currency and Zimbabwe dollar. Banks will create dedicated or specific accounts for the holding of the gold-backed digital tokens (e-gold wallet or e-gold cards). Holders of physical gold coins, at their discretion, will be able to exchange or convert, through the banking system, the physical gold coins into gold-backed digital tokens

(ii) Phase 2: The gold-backed digital tokens held in ether e-gold wallets or e-gold cards will he tradable and capable of facilitating Person-to-Person (P2P) and Person-to-Business (P28) transactions and settlements. It therefore means that the gold-backed digital tokens would be used both as a means of payment and a store of value.

The Bank also advises that the pricing of the gold-backed digital tokens in foreign currency shall remain the same as the pricing model of the physical gold coins as informed or guided by the International gold price as determined by the London Bullion Market Association (LBMA) PM fix. Payment for the gold-backed digital tokens or physical gold coins in Zimbabwe dollar shall remain at the current 20% margin above the willing-buyer willing-seller interbank mid-rate.

John P Mangudya,

Governor

28 April 2023

Also read:

The RBZ’s digital gold coins are a good idea but may be undone by just one word – trust

Zim govt introduces gold coins which could be a game changer, commitment to multicurrency regime commendable too

Zim govt looking at central bank digital currency, what is that and why won’t it fix our problems

The post RBZ’s gold-backed digital tokens coming on 8 May 2023 appeared first on Techzim.

I will assume you know about the digital gold tokens that the RBZ is issuing. If you have been living under a rock, get yourself acquainted with the details here: The RBZ’s digital gold coins are a good idea but may be undone by just one word – trust.

Now that we are all on the same page, it may interest you to know that today, the 8th of May, is the first day you can actually buy said gold tokens. To purchase tokens, you have to fill out an application form and submit it to the RBZ through Commercial Banks, Building Societies or POSB.

The RBZ says the digital gold tokens will be held in e-gold wallets or e-gold cards. We wanted to find out how one goes about purchasing the tokens and which financial institutions were ready to serve us. Here is what we found out by talking to banks and the issuer of the gold tokens, the RBZ.

Not really meant for transactions

Although the RBZ says you can use the gold tokens for day to day transactions, they are not really made for that. They are meant to be a store of value and that remains their primary use case.

Banks were not ready

Banks were mostly not ready. We got a lot of ‘let us call you back once we get the information’ responses. One bank played hot potato with our call, redirecting us a ridiculous 8 times only to give us a ‘let us find out and call you back.’

My absolute favourite was one that went, ‘are those tokens on the market now?’ I couldn’t hold back my laughter. Another thought I was talking about gold coins and kept insisting on it.

I understand that sometimes the information that’s in back room offices is not disemminated to the front desks in time but for some banks, even the back room offices did not have the answers.

CBZ admitted that they were not ready and said they would communicate when they have their ducks in a row.

From what we gathered though, here is how you go about it.

Buying the gold tokens

Offers opened today, the 8th of May and they close on the 11th of May. You will be issued your gold tokens on the 12th, if successful.

Do note that, the RBZ reserves the right to decline to sell the digital gold tokens to you. So much for inclusion. You cannot use borrowed funds to purchase the gold tokens, which is one of the things that can lead the RBZ to deny you. To buy…

You have to go to a bank and fill out a request letter/application form. It has to be your bank though. You need to have an account with that bank to be able to purchase gold tokens through it.

A prepaid USD card won’t work, you need to have a full current/savings account with a bank. It does not appear that you can use cash, although who would want to do that.

So, there goes your financial inclusion. No bank account, no gold tokens apparently. The banks that gave us this information reiterated that the documentation is not clear, they are not 100% sure that this is the case.

That said, some of them, like CABS, pretty much said, only CABS Nostro account holders can purchase the tokens for now. At the moment you cannot purchase using Zimdollars there but that is going to change.

Some are taking Zimdollars at Willing-Buyer-Willing-Seller rate +20%.

What of the e-gold wallets and cards?

Good luck trying to find that out. Most banks are not sure and say we shall see how that works when issues are made on the 12th.

The banks that answered the question said all they know is that certificates will be issued out. We just don’t know what form they will be in. Will they be PDFs? – surely they can’t print out certificates for $10 tokens. We shall see what form the certificates take on Thursday.

The RBZ says banks will be in charge of opening and running those wallets/cards and yet banks have – I feel confident saying this – done very little work in that effort. If indeed banks need to have the infrastructure ready by the 12th, then this whole gold token business is dead on arrival.

However, from what we gathered, it does not appear as if there will be any need for the wallets or cards.

We were told that one will be issued a certificate if the RBZ deems them worthy of buying the e-gold. Just a certificate, no special wallet needed. Makes you wonder why they were marketed as digital tokens if that’s the case.

Remember though, the bankers that told us this would not stake their lives on that information being accurate.

That in itself is an indictment on the readiness of banks. That uncertainty when the product is already on the market is worrying. They could be wrong on this one but if they are wrong, then it definitely means they would not have the wallets ready in 4 days’ time. It’s kind of a mess.

What about the 180 days vesting period?

You can redeem your gold tokens after 180 days (half a year.) This means that if you want to convert the gold tokens back into currency – USD or ZW$ – you can do that by selling back to the RBZ but only after 180 days from the date of purchase.

To note though, nothing stops you from trading the tokens on the secondary market. The RBZ says that is okay, same is happening with the gold coins.

The RBZ says many have not redeemed their gold coins from the central bank because some are still holding on to the coins as an asset and some have found ready buyers on the secondary market.

The same should work with the gold tokens. Although you will only be able to get your money back from the RBZ after 180 days, you are free to cash out on the streets, with the RBZ’s blessing.

So, if you decide to bite the bullet, go to your bank. Remember, you have to be an accountholder with that bank. Here is what some of the banks had to say.

The banks

• AFC (Agribank) – visit a branch and fill out your request, accepting both USD and ZW$
• CABS – visit your nearest branch, you have to be a CABS Nostro account holder, only USD for now
• FBC – visit a branch and fill out your request, accepting both USD and ZW$
• First Capital – visit a branch and fill out your request, accepting both USD and ZW$
• Nedbank – visit a branch and fill out your request, accepting both USD and ZW$
• Stanbic – visit a branch and fill out your request, accepting both USD and ZW$
• ZB – visit a branch, not sure about the details

The following banks have not confirmed that they are accepting gold token purchase requests.

• BancABC – will get back to us
• CBZ – says they are not ready but will communicate when they are
• Metbank – could not reach them
• NBS – will get back to us
• NMB – could not reach them
• POSB – will get back to us
• Standard Chartered – could not reach them
• Steward – could not reach them

That’s it. If you have any more questions about the digital gold tokens do ask in the comments section below and we will get to finding the answers.

Also read:

Zim govt introduces gold coins which could be a game changer, commitment to multicurrency regime commendable too

Zim govt looking at central bank digital currency, what is that and why won’t it fix our problems

The post Digital gold tokens – here’s how you go about purchasing. Not all banks are ready appeared first on Techzim.

We were not able to buy gold tokens before the deadline yesterday. We tried different banks and came up short in all cases.

One bank told us they were waiting on instructions from their Head Office on how they should process gold token purchase requests. One told us that they stopped accepting offers the day before the actual deadline. Where the deadline was the 11th of May at 12pm, their own was the 10th at 2pm.

While we were not able to buy our own, some were able to participate and the Reserve Bank of Zimbabwe has updated us on what transpired during this first window of the gold tokens being on sale.

RBZ GOLD-BACKED DIGITAL TOKENS ISSUE NO. 1/2023 RESULTS
The Reserve Bank of Zimbabwe would like to notify the public of the results of the RBZ Gold-backed Digital Tokens issue No. 1/2023 held on Friday 12 May 2023. The Bank received 135 applications valued at ZW$14,077,337,421 to purchase gold-backed digital tokens. The full amount was allotted. The details of the results are as follows:

	ZW$	US$
Date of Issue	12 May 2023	12 May 2023
Number of Bids Received	132	3
Value of Bids Received	14,077,337,421	810
Amount Allotted	14,077,337,421	810
Price per Milligram of Gold	100.87	0.0688
Milligrams of gold purchased	139,559,209	11,773

Total milligrams of gold purchased: 139,570,982 (139.57 kg of gold)

RBZ GOLD-BACKED DIGITAL TOKENS ISSUE NO. 2/2023

Applications under the second issue of the RBZ gold-backed digital tokens should be submitted through banks during the course of the week for settlement and issue on Thursday, 18 May 2023.

RESERVE BANK OF ZIMBABWE
12 MAY 2023

In US$ terms, the total value of bids placed was over US$5 million if we use a USD/Swipe black market rate of 1:2800. It is US$11.4 million if we use the Willing Buyer Willing Seller rate of 1:1235.

The market is testing them out before committing to converting ZW$ reserves into gold tokens is my guess. Yet, it was a respectable first week in my opinion.

Did you place your own order? Or are you surprised people are actually bidding for the tokens?

Also read:

IMF says Zimbabwe’s gold-backed digital tokens likely a bad idea

Digital gold tokens – here’s how you go about purchasing. Not all banks are ready

The post Over US$11.4 million (equivalent) bid for gold-backed digital tokens in first issue appeared first on Techzim.

Day by day, the Zimbabwe government is admitting that the forex auction was a mistake. It is the main reason for the Zimdollar tanking. They won’t come out right and say that but their changing tune when it comes to monetary policy is revealing.

The Monetary Policy Committee held a meeting yesterday and pretty much admitted defeat. It might be too little too late for the ZW$ though.

PRESS STATEMENT

RESOLUTIONS OF THE MONETARY POLICY COMMITTEE MEETING HELD ON 6 JUNE 2023

The Monetary Policy Committee (the MPC) of the Reserve Bank of Zimbabwe (the Bank) met on 6 June 2023 and deliberated on macroeconomic and financial developments in the economy. The MPC also deliberated on the progress made in the implementation of measures announced by the Honourable Minister of Finance and Economic Development on 11 May 2023 and 29 May 2023, respectively, to address the recent volatility in the exchange rate and prices of goods and services in the economy.

The MPC noted that the prevailing volatility in the exchange rate emanated from both supply and demand side factors. The supply side factors reflected the transitory reduction in foreign currency inflows, while the demand factors reflected the sustained value-preservation demand for foreign currency in the economy. In order to complement the measures announced by Government, the MPC resolved as follows:

Supply Side Measures

The following measures shall be implemented to address supply side foreign currency constraints:

i. With effect from 7 June 2023, the Bank shall sell foreign currency at the market-determined exchange rate through banks to support and strengthen the foreign exchange interbank market, and banks shall in turn sell the foreign currency to their customers. This measure is calculated to ensure that the interbank forex market is the primary source for foreign exchange needs in the economy and that the foreign exchange auction system shall continue to operate for meeting smaller requirements for foreign payments and for continuous price discovery. Thus, in order to ensure that the interbank forex market is self-financing the 90-day liquidation requirement on export proceeds will fall away.

ii. The current interbank maximum trading limits shall be reviewed upwards from US$100 000 to US$500 000, consistent with the current auction limits;

iii. The main and MSME auction will be merged under the US$5 million per week policy, with bid limits of a minimum of US$1 500 and a maximum of US$50 000; and

iv. The trading margins charged by banks on foreign exchange transactions will be aligned with international best practices.

Demand Side Measures

To address the demand side factors, the MPC resolved to adopt the following measures:

i. Increasing the Bank policy rate from 140% to 150% per annum, in response to the recent increase in inflation;

ii. Increasing the Medium-term Bank Accommodation (MBA) interest rate from 70% to 75% per annum; and

iii. Increasing the Statutory Reserve Requirements on local currency demand and call deposits from 10% to 15%, while maintaining savings and time deposit requirements at 5%.

The Bank remains committed to continuing with the current tight monetary policy to restore and sustain the exchange rate and inflation stability. The issuance of gold-backed digital tokens to augment physical gold coins as a value preservation instrument has gone a long way in mopping up excess liquidity from the market. To date, the Bank has sold to the market ZW$31.8 billion and ZW$35.2 billion worth of gold coins and gold-backed digital tokens, respectively. The rolling out of digital tokens for transactional purposes in the second phase, which is projected to commence during the month of June 2023, will buttress the current stabilisation measures.

John P Mangudya

Governor

6 June 2023

Gold tokens popular

The gold tokens only went on sale last month but it appears there have been more gold token purchases than there have been physical gold coin purchases – $35.2 billion vs $31.8 billion.

I doubt that those figures are inflation-adjusted and so they don’t capture the actual value of gold coins when they first went on sale, especially.

There is also the small matter of gold coins being harder to sell in larger quantities because they actually have to produce the coins. That means they need to have the gold and they need to mint it into coins.

With the tokens we are promised that the gold is there, somewhere. However, the RBZ does not need to mint any coins. They just store the gold in a vault.

Can we confirm that the gold really is there? We cannot. So there will always be more tokens to sell than coins. I’m just surprised people have been buying them this much.

The interbank rate

The RBZ wants the interbank rate to be the sole determiner of the exchange rate. Not their auction rate. So, the RBZ itself will sell at the rate interbank rate.

They realised that their 90 day liquidation requirement would still limit the supply of USD to the banks, rendering the interbank rate inaccurate. If you had forgotten the liquidation requirement compulsorily converted a portion of people’s USD to ZW$. That forced liquidation is gone now.

Exporters or depositors I guess, can keep their USD in their account for as long as they want without being forced to convert some of it to ZW$.

This is how it should have always been and so we can’t really congratulate the RBZ or this move.

What’s annoying about this is that it is all too late. Who in their right mind is going to trust them and deposit USD long-term in the formal financial sector? Very few. The ZW$ is doomed and now we get the sensible policies we were crying out for for years?

The black market will most likely keep outpacing the interbank rate in spite of the above measures. Meaning arbitrage opportunities will still remain.

Yesterday, the interbank rate was at around 1:2770 whilst the black market rate reached as high as 1:4600 (or even higher) in some places. Will they converge now that the interbank rate has been empowered to be a true market rate? I don’t think so.

Let us know what you think about all this.

Also read:

The RBZ’s digital gold coins are a good idea but may be undone by just one word – trust

Zim govt no longer forcefully taking 15% of your USD sales, expects US$13 bn forex inflows this year

The post Gold tokens have already surpassed gold coin sales, the interbank rate empowered to succeed and more monetary policy tweaks appeared first on Techzim.

Utter the name ‘RBZ’ in front of most adult Zimbabweans and you’ll hear a ‘tsk tsk’ in return. For all the good that the Zimbabwean central bank has ever done, its failures are just so large as to eclipse it all.

My friend, consider this – some teenagers have gone through multiple hyperinflation periods in their lifetime in this country. I do not think trust in the institution could be any lower.

The same applies to the government as a whole. Zimbabwe is not a bastion of excellence and for all the sanctions talk we can have, the government will have to take a significant piece of the blame pie. My whole life we have talked about a bloated civil servant wage bill and yet civil servants are underpaid. It’s ridiculous.

Then come the state-owned enterprises. While there are some like Telone that are not complete failures, they would probably do much better without government interventions. Let’s not even talk about Air Zimbabwe and ZESA, we all know how successful they have been.

The above is depressing but let’s take comfort in knowing we are not alone on this boat. So many countries out there are unhappy with their governments, central banks and state-owned enterprises.

Some dude in Argentina thought to himself, what if I got into power and did something about it? What if I got rid of the central bank and privatised parastatals?

The crazy Argentine experiment

Javier Milei, Argentina’s soon-to-be president, is shaking things up with some wild ideas. One of his craziest plans is to say adios to the Central Bank of Argentina (BCRA).

Milei thinks the BCRA is like a toothless lion – not doing its job to control inflation and keep the economy steady. You could be forgiven for thinking he’s talking about the RBZ here.

Milei wants to try a new game plan: ditch the central bank and bring in a currency board that ties the Argentine peso to the US dollar. This move would stop the central bank from setting interest rates and printing money.

For context: as revealed by the Mid-Term Monetary Policy Statement, the bank policy rate (commonly just called interest rate on the streets) is 150% in Zimbabwe whilst it’s 133% in Argentina. The USA sits between 5.25 and 5.5%.

Annual inflation in Zimbabwe as measured by the RBZ is 103% whilst Argentina’s is somehow worse at 138%. You know how the Americans have been complaining about high inflation, well, it’s 3.2%.

Can we say the RBZ and Argentina’s central bank are doing a great job in controlling inflation? Milei says, ‘Why should the central bank still exist when it has shown that it is incompetent?’

This is a crazy idea and many economists, even those highly critical of the RBZ would not suggest that we do away with a central bank altogether. However, I guess they will be tuning in to see what happens in Argentina if Milei follows through with his campaign promises of doing away with the central bank.

There’s more. Milei has some other interesting ideas up his sleeve:

• Austerity for Prosperity: Milei wants to trim the fat from government spending by 50% over the next four years. He thinks the government is too big and slow, and these cuts will slim down the budget deficit and help the economy recover.
• MaObama: Milei is talking about going all-in with the US dollar and ditching the local currency. Dude, this guy just keeps sounding Zimbabwean. We have flirted with this idea in Zimbabwe for years but the govt is adamant it would make things worse. Milei thinks this would stop the risk of money losing its value and make investors cheer.
• Govt can’t run no business: Milei also wants to put the ‘For Sale’ sign on some government-owned companies, like the national energy giant YPF. This is eerie, how many people have called for ZESA to be privatised in Zimbabwe? He figures selling them off will make things more efficient and get investors excited.

What’s the Big Picture?

We can look at Argentina as our very own lab rat. We can grab our popcorn and see how it all plays out and then factor in the differences in our economies and assess whether we could pull it off here.

One thing we kind of have experience with is the fixed exchange rate that Milei is proposing. That doesn’t work out if our experience is anything to go by but who knows, it might work out over there. Milei thinks the perks of a free-market approach to monetary policy would outweigh the risks.

Milei’s other proposed policy changes, such as drastic cuts to government spending and full dollarisation, could also have a significant impact on the economy. These changes could lead to job losses and social unrest in the short term, but Milei’s supporters believe that they would be necessary to put the economy on a sustainable path to growth in the long term.

Say what you want about Mthuli Ncube but at some point, he successfully managed to drastically cut government spending in the ‘austerity for posterity’ days. Unfortunately, we felt the austerity bit but are still waiting for the prosperity bit. So, good luck to Milei on that one. On paper, it should work but maybe Zimbabwe is just cursed.

We abolished a local currency at some point and many Zimbos swear we had it good during that period. Yes, there was deflation and the economy was not growing but after experiencing hyperinflation, the masses did not mind.

The debate rages on in Zimbabwe on whether we should fully dollarise or get rid of the US dollar. Let’s see what happens in Argentina and maybe it can help us make a good decision.

It’s good that we get to do this because we got to see how making Bitcoin legal tender turned out in El Salvador – not great. Showed we need not even consider the crazy idea.

Keep your eyes on the Argentine show. Milei’s plans are still just sketches on paper. Whether he can turn them into action and what it means for Argentina’s economy is a story yet to unfold.

Also read:

The RBZ’s digital gold coins are a good idea but may be undone by just one word – trust

The RBZ still accepting input on upcoming digital currency (CBDCs), participate

Zim has much in common with country which made bitcoin legal tender, so…

The post New president of Argentina plans to shut down central bank, imagine closing the RBZ, could that work? appeared first on Techzim.

Here is the situation Zimbabwe finds itself in – it just cannot find ways to generate revenue. The only way the government makes anything is by extorting it out of its poor citizens.

In the RBZ’s Quarterly Review, we find that only 1.9% of the government’s revenue is from non-tax sources. Put another way, tax revenues accounted for 98.1% of total revenues.

You may have seen the video of the RBZ governor supporting Mthuli’s crazy tax regime, saying something loosely translated as “There is no money out there and so we have to get it here.”

While acknowledging the necessity of government revenue for operation, we are also acutely aware that elevated taxes can adversely affect economic activity. If the objective is to promote economic growth and enhance productivity, imposing high taxes is counterproductive.

The government acknowledged this when they revised their USD tax down. You may recall that when IMTT first hit the scene, the tax on locally remitted USD was 4%, which was later dropped to 2% and then 1% in 2023.

It is refreshing to see the Zim government adjust taxes down when it becomes counterproductive. Let’s hope the recently announced tax hikes will be revised in the near future.

Productivity

On to productivity. In 2023, the country’s GDP was slated to grow by 4.5%, we shall know in a few months just what the actual growth rate was. What we know from VP Chiwenga is that estimates in October had it exceeding US$40bn in 2023 from US$35bn in 2022.

So, the country is producing more. In fact, the stats say GDP was US$17bn in 2017. That means the economy has more than doubled in the 5 years since 2017. I can’t say I’ve felt this growth.

Informal sector

In 2023, we also got an estimation of the country’s GDP that factors in the informal sector. World Economics estimates Zimbabwe’s GDP at US$66bn, which is much larger than the US$35bn we managed in 2022 or even the $40bn from January to October 2023 that Chiwenga talked about.

This suggests that the informal sector is about the same size as the formal sector. That’s impressive but if I’m being honest, I thought the informal sector was much larger than the formal sector.

That may indeed be the case still because even World Economics acknowledges that it is hard to estimate the size of the informal sector. Even Eddie Cross, the economist, thinks the $66bn figure might be conservative. Cross has recently been too glowing in his assessments of the Zim economy though, that’s the context you need on his thoughts here.

Exports and Remittances

In the 9 months to September 2023, the country’s exports grew by 8.1% to US$5.16bn from $4.78bn in the same period in 2022. That’s something there, hopefully this trend continues until this forex crunch is a thing of the past.

We have to rein in our imports if that’s to happen though because imports of $6.67bn went along with the $5.16bn exports. That’s a trade deficit of $1.51bn, which is not ideal.

Remittances

With this in mind, you can clearly see why we celebrate the USD inflows that come from our brethren based in foreign countries.

In the 10 months to October 2023, Zimbabwe received $1.47bn in remittances, an 8% increase but that’s just captured remittances.

There is a significant amount of remittances that come in via informal channels that are not captured in this figure. No one really knows how much comes in this way.

However, even just the formal remittances are almost enough to offset the trade deficit of $1.51bn we talked about above.

As you know, the last quarter of the year is the busiest when it comes to remittances inward. So, the total remittances figure for the whole of 2023 will be much higher than the $1.47bn in October. However, I don’t think we will reach the $2.1bn that the government had forecast.

Makes you wonder, do we have too many players in the remittance industry? Yes, $2bn is a lot of money but can it support the fintech companies popping up every other week?

Let’s hope this competition leads to lower transaction charges and the introduction of new and novel services.

Back to exports

Instead of looking to Zimbos based outside to balance our current account, we should be looking to increase our exports, reduce our imports or both.

We talked about an 8.1% increase in exports, here are some key highlights from that growth:

• exports of manufactured or value-added products – increased by 22% from $264.9m to $324.1m
• tobacco exports grew by 60% from $46m to $73m
• processed food exports grew by 39% to $85.2m
• household electricals and furniture by 21% to $18.5m

What’s concerning is that exports to South Africa, our biggest export market decreased by 10.4% to $1.76bn. The positive is that exports grew despite our biggest export market shrinking, meaning we are diversifying.

2024

This year we will focus on showcasing what startups are doing. The above is the economy they will be operating in.

Reading the above you can see why there is a rush by all players to get in on the remittance game, estimates say it’s a US$2 billion industry. If they can convince those using informal channels to go formal, then they would be sitting pretty.

There are many other problems worth solving in the Zimbabwean economy and we look forward to showcasing what Zimbabwean entrepreneurs are up to.

Also read:

• Zimstat says you need just US$20 a month to be considered not poor, doesn’t make sense
• New president of Argentina plans to shut down central bank, imagine closing the RBZ, could that work?
• Govt to look under rocks to capture activity of informal businesses in Economic Census – I see roadblocks

The post Exports and remittances both up 8%, are there too many players doing remittances though? appeared first on Techzim.

We’re almost there good people, John Panonetsa Mangudya’s tenure as governor of the Reserve Bank of Zimbabwe is almost up. Mangudya is set to leave his post at the end of April 2024.

Opinions are split on whether or not he did a good job in his ten-year reign. He gives himself a 6/7 out of 10, many economists agree with him. That sounds high for some of us laypeople but is probably fair.

I know, most of you guys would give him a zero but let’s see what these economists say he did right.

The politics

Before we get into that, we must first acknowledge how limited the central bank governor’s authority actually is.

The government in Zimbabwe, more specifically ZANU PF, calls the shots. You can have some wiggle room but by and large, governors take orders from politicians.

The central bank is not independent, at least not strongly.

Former governor Gideon Gono has always defended some of the questionable or downright terrible decisions he made saying he merely took instructions from his principal, Robert Mugabe. I’m sure no one doubts this.

You can bet that the same has been the case for Mangudya. It might be to a lower extent but there was still a limit to the decisions he could make.

So, we cannot ignore this reality when we evaluate these governors’ performance.

One could argue that the same could apply to Mthuli Ncube, an intellectual who seemed to know what he was doing before getting the Finance Minister job. Now, he is a shell of himself, presiding over an economy that’s marred by serious perennial problems he can’t seem to be able to tackle.

This all means the new RBZ governor, John Mushayavanhu has his work cut out for him.

Mangudya’s tenure

I think Mangudya regrets ever saying this,

If these policy measures fail, if the bond notes do not work out, I’m willing to resign…

He said that in 2016. He clearly believed he had an ace up his sleeve. When the bond notes failed, as most Zimbabweans thought, Mangudya did not resign. He maintained that they had been a success.

We did look at why he believed that here: Could It Be We Missed That Bond Notes Actually Served Their Purpose? You can also get more detailed reasons as to why bond notes failed here.

Unfortunately for Mangudya, we will remember him for these few things:

• removing us from the relatively stable (albeit deflationary) economy in the sweet multicurrency-but-no-local-currency days
• stealing our hard-earned USD using trickery – the bond notes peg of 1:1 caused irreparable damage. Not least the total severing of the little trust the public had in these institutions
• sneaking back a Zimdollar and taking us back to hyperinflation, you can call it chronic high inflation, potato-potato
• creating an unstable exchange rate, I believe we have the ill-advised 1:1 peg to thank for that
• balance of payments challenges and rising external debt

He did have his successes. The following is why some economists agree with a 6/7 rating:

• Stabilising the financial sector – there was a time when banks were folding every other day, taking public faith with them but Mangudya managed to help stop that. Personally, I think the con is that Mangudya was such a bankers’ banker that he prioritised the health of banks over the needs of the public, I was not a fan of the bank bailouts (ZAMCO) but you can’t take away the stability he presided over.
• Technology – Mangudya promoted the adoption of technology and initiatives like the RBZ Sandbox were good to see. Even beyond that program, Mangudya did promote fintechs. We could have done with better transparency on all that but still, good to see.
• Few scandals – corruption runs rampant in Zimbabwe and so it is good to see that there weren’t too many scandals at the RBZ during his tenure. I had low expectations, what can I say.

Central banker report cards

Global Finance has been publishing the Central Banker Report Cards for three decades. However, they have only graded Zimbabwean governors since 2019. So, only Mangudya has been graded and here is how he fared over the years:

2019 – D grade

Why a fail grade? Here are snippets of what they had to say about Mangudya and the RBZ:

• The RBZ raised its overnight lending rate by 20 percentage points on September 13 to an all-time high of 70% to curb the world’s highest infla­tion rate, estimated at between 300% and 570%
• The country’s statistics office does not release timely inflation data.
• A protracted cash shortage has worsened steadily since Mangudya was appointed…
• Since the February currency reform, the exchange rate has depreciated…

2020 – D grade

Global Finance said,

• Inflation soared in May to 785% amid shortages of fuel and foreign exchange
• The Zimbabwe dollar was pegged to the US dollar at a 1:1 ratio in January 2019, but it was later floated and is now worth 1.5 US cents
• Central bank governor John Mangudya blames the country’s continuing economic woes on a demon that can be felt but not seen

2021 – C grade

Global Finance said,

• …prudent monetary policy stance that has resulted in year-on-year inflation dropping from 837.5% in July 2020 to 50.2% in August 2021
• Growth is projected at 3.9% in 2021 by the World Bank and 6% by IMF
• …launched a regulatory sandbox framework to encourage innovations in the fintechs and further liberalised the operations of bureau de change

2022 – D+ grade

Global Finance said,

• …(RBZ) have their hands full dealing with hyperinflation, free-falling local currency, a chaotic forex market and a banking sector in which loan facilities are abused by business
• RBZ has resorted to extreme and sometimes unorthodox measures

There really were some unorthodox measures in 2022. I can’t believe we survived through this:

• rate hike from 80% to 200% to curb inflation and speculative borrowing
• introduction of a gold coin
• RBZ even went so far as to temporarily halt bank lending

2023 – D grade

Global Finance said,

• Trial and error continue to define John Mangudya’s tenure [truer words have never been spoken]
• Launching gold coins failed to tame the local currency crisis
•  RBZ now believes that gold-backed digital tokens are the solution
• …the Zimbabwe dollar is on the verge of collapse, having lost more than 80% of its value since the beginning of the year
• Mangudya faces regular political interference and is unable to curb the appetite for borrowing in President Emmerson Mnangagwa’s government.

That’s rough. In his whole second term, Mangudya got a passing grade, a C at that, in 2021.The rest were Ds with one of them a D+. Suffice it to say, Global Finance would not give him a 6/7 out of 10, more like a 3/4 out of 10 in line with the D he got.

This is more in line with what most Zimbabweans would give him, no more than a D.

On to other things

Mangudya already has a job lined up. He was appointed CEO of Mutapa Investment Fund, the country’s sovereign wealth fund, which used to simply be known as Sovereign Wealth Fund of Zimbabwe.

So, he will be in charge of some of our monies.

Also read:

• Zimbabwean banking industry: Shame, Shame, Shame!
• Mangudya says not enough USD in Zim to redollarise, Biti says that’s nonsense. On closer inspection, they agree.
• Dr Mangudya graded by the Central Banker Report Cards

The post John Panonetsa Mangudya’s 10-year tenure as RBZ governor almost up, how did he do? – D grade appeared first on Techzim.