John Panonetsa Mangudya is an economist and the current Reserve Bank of Zimbabwe governor. Mangudya, who sits on many local and international boards .He was made RBZ governor after the expiry of Gideon Gono's term in 2014. He had been CBZ Holdings Ltd Chief Executive... Read More About John Mangudya
The Reserve Bank of Zimbabwe (RBZ) is the central bank of Zimbabwe. Its offices are located at number 80 Samora Machel Avenue in Harare. The Reserve Bank of Zimbabwe operates under the Reserve Bank of Zimbabwe Act, Chapter 22: 15 of 1964. The Act provides... Read More About Reserve Bank of Zimbabwe
As we have mentioned in an early article, the government has finally abandoned the 1:1 ship. Bond notes, coins, Ecocash, Telecash and bank balances are now known as RTGS dollars. Personally, I think he should have just called them bollars like the rest of us but at least the governor is on the right track.
So these bollars or RTGS dollars as our governor likes to call them shall be sold at a variable exchange rate in the formal banking system.
RTGS, bond notes and coins to be immediately denominated as ‘RTGS Dollars’. The legal instrument giving effect to this has been prepared and will be gazetted soon
“RTGS dollars have become one of the currencies in the currency bucket of the multi-currency system of the economy”
The RTGS dollars shall be used by all entities in Zimbabwe for the purposes of pricing of goods and services, debts, accounting and settlement of transactions
We have put in place measures to maintain stability as we establish an interbank foreign exchange market in Zimbabwe to formalise the exchange of Bond and RTGS with USD and other currencies”
Bollars are now our official currency
As always the good governor has been a chicken and shied away from explicitly presenting us with a new currency. Instead, he continues to hide behind his bond notes which like James Bond of movie fame continue to do all his dirty work. Zimbabwe now has a de facto new currency: the bollar.
Everything will now be priced and sold in bollars as cited above. He has also ruled out dollarisation as undesirable. Again I could not agree more. I am in the Rand camp myself as the dollar makes our exports rather uncompetitive.
Floating the bond and pricing everything in Zimbabwe in bollars brings about much-needed relief in the industry. It now immediately means, for example, Zimbabwe does not have the most expensive fuel and our exports are now reasonably priced.
The RBZ gives up
This Monetary Policy is what we business-minded people have been calling for for ages. The RBZ has long resisted these reforms in order to protect the government and certain higher-ups. With this statement they have now essentially given up.
During the Monetary Policy Statement delivered earlier on today, RBZ Governor gave banks an ultimate to ensure that they bolster their security in order to fight against the ever-growing Cybercrime threats that were becoming more widespread in the country. The governor has given banks upto 31 March 2019 to have hand-in their cybersecurity policies.
Mangudya also disclosed that 80% of the bank cards in the country are EMV compliant and the remainder should be updated by the 31st to meet Euro, Visa and Mastercards (EMV) standards.
The Reserve Bank of Zimbabwe (RBZ) is the central bank of Zimbabwe. Its offices are located at number 80 Samora Machel Avenue in Harare. The Reserve Bank of Zimbabwe operates under the Reserve Bank of Zimbabwe Act, Chapter 22: 15 of 1964. The Act provides... Read More About RBZ
The Zimbabwe Republic Police is the country's law enforcing and maintaining organ. It was established in 1980 evolving from the Rhodesian Police and incorporated members from both the Rhodesian and the nationalist forces. It operates under the Ministry of Home Affairs. Read More About ZRP
Tacked in between the surprising but not so surprising revelation that bond notes and all of Zimbabwe’s pseudo currencies were no longer equal to the USD, was a cryptic reference to something called IFRS 9. If you were one of the people stumped by this, fear not, I am here to educate you.
What is IFRS 9?
Is fully known as International Financial Reporting Standard (IFRS) 9 and was introduced to the world by the International Accounting Standards Board (IASB) back in 2009 as a replacement for an earlier standard known as International Accounting Standard number 39.
You see when it comes to accounting there are two types of accounting:
Financial Accounting- which often involves creating what are known as financial statements. These statements are meant for consumption by the outside world. You see them in a lot of newspapers etc. To make it easier to compare these statements they have to be prepared in a uniform universally accepted way. Accounting standards such as IFRS 9 are applied to make sure that accounting information from various organisations is prepared in a consistent and acceptable way.
Management Accounting-where financial information is recorded, compiled and presented to the management of the organisation in question in order to aid decision making. Here management comes up with whatever templates they deem useful.
The IASB has promulgated lots of standards meant to deal with all manner of issues a financial accountant might have to deal with. For example, there is IAS 1 which outlines the format/structure of Income Statements and other financial statements, there is IAS 2 which deals with inventories and IAS 29 dictates how entities in hyperinflationary economies are supposed to factor in inflation in their financial statements.
IFRS 9 is particularly important to banks. It deals with Financial Instruments. It defines what a Financial Instrument is, how to calculate its value and how it is to be recorded in the accounting books and financial statements. Banks tend to have a significant amount of financial instruments on their balance sheet.
IFRS 9 introduces prudence and consistency in the way in which financial instruments are recognised, recorded and presented. A lot of financial institutions have been known to inflate the value of their assets. IFRS 9 is meant to prevent that.
Why is IFRS 9 mentioned in the Monetary Policy
IFRS 9 came into effect last year in January 2018. As has already been made clear above, all businesses are required to adopt IFRS 9 when doing Financial Accounting. Banks like all the others adopted IFRS 9 last year. What the RBZ is stating is that they are pleased with the way IFRS 9 has enhanced the reporting environment.
Well, the Zimbabwean government has now been finally forced to admit what we have known all along: Bond notes are not equal to real US dollars despite what the law says (or used to say). Nor are RTGS balances that now flood our accounts equal to US dollars. We all know that. We have known it for a long time.
Here is another thing we know: the government stole our United States dollars. The ones that were in our accounts and replaced them with RTGS numbers which we already know are not equal to US dollars. In a clandestine act of legal robbery, they transferred numbers picked from thin air and took out billions of USD from banks.
What’s the money situation like right now
At the moment when the latest Monetary Policy was created:
There are 3 458 175 RTGS dollar accounts
These have a total of $9.56 billion RTGS dollars in them
In contrast, there are 133 633 FCA or real USD accounts
These have about $674 million USD in them
This means FCA accounts constitute only about 7% of the entire money in our banks. This explains why dollarisation is not an option. There simply aren’t enough dollars period.
How the government robbed us?
They actually employed a myriad of methods but we are going to keep it simple. Back in 2009, we had an almost pure money supply. For simplicity’s sake let us assume 100% of the money in banks was USD. The problem was that the Zimbabwean government fresh off from printing money during the 2008 era was hurting.
Their revenue collection efforts were bringing in about $4 billion dollars. Thanks to legacy debts, a bloated civil service, populist activities such as command agriculture and just plain old corruption that $4 billion could not sustain government expenditure to the levels that the ruling government wanted over the years. At some point, they could not even pay civil servants at once.
Faced with such a crisis the government could not print money in the traditional sense as the USD was now the primary currency. They were however in charge of the RTGS system. So they proceeded to send RTGS dollars to for example the bank accounts of civil servants. Whenever these civil servants withdrew money they were taking real dollars deposited by others.
As this continued to happen month after month the ratio of real USD versus RTGS dollars continued to decrease. This created a liquidity and cash crisis. You see RTGS dollars are invisible, you cannot actually touch and carry them around. As these continued to replace real USD there were no longer enough real USDs to meet people’s withdrawals. People were now spending hours in queues as they waited to get their hands on real USD.
Faced with such a crisis the government decided to make real RTGS dollars in the form of bond notes to ease the cash crisis. Pegged at 1:1 with the USD and backed by the ever mysterious African Export-Import Bank loan the bond note appeared. The reason given for us getting bond notes instead of getting the real USD from this bank was that people would externalise real USD while the bond notes could only be used in Zimbabwe.
The facility was supposed to guarantee the value of the bond notes. If I were to guess, I would say if this facility indeed existed, the government went and plundered it too while we were not looking. It’s the reason why the governor did not bother to mention it when he, in essence, devalued the bond note.
The RTGS balances continued to grow and the USD balances to shrink despite the government claiming the two were equal. In fact, the only reason they put up with the charade for so long was because they wanted to expropriate people’s real USD at a favourable rate. The most shocking thing for me was the claim by the RBZ governor at some point, that he didn’t know where the RTGS dollars were coming from. Now that is pretty low even by RBZ standards.
A culture of impunity and opaqueness
Now here we are, poorer and relieved of our USD. The only reason why this is legal is because the Zimbabwean government likes to make laws that will shield it from accountability. It’s the reason why this country continues to rank so lowly on corruption and business indexes. The reason why mega deals are signed but never see the light of day.
Laws are created to shield those in power. The RBZ and most government policies continue to be made in dark alleys away from public scrutiny. Parastatals and their politically connected leaders continue to flout laws with impunity. Most do not even bother to produce audited statements on time as the law requires. They cannot even be bothered to obey the law and produce a Monetary Policy on time as the law requires.
To them, the law is meant for us commoners. In fact, the government has on multiple occasions shown a willingness to use lethal force upon citizens whenever they think said citizens are breaking the law. Say what you will, the government robbed us, there is no denying that now.
RTGS DollarsBond Notes
Zimbabwe RTGS Dollars are a Zimbabwean currency introduced on 20 February 2019 by the Reserve Bank of Zimbabwe. At introduction, the currency consisted of existing RTGS balances in bank accounts, Bond Notes cash and Bond Coins. The introduction of the RTGS Dollars was announced by... Read More About RTGS Dollars
Bond Notes are a currency of notes backed by a bond that the Zimbabwe government announced on 4 May 2016 by Reserve Bank of Zimbabwe (RBZ) governor John Mangudya. The $2 denomination of the notes was finally introduced on 28 November 2016. More notes were... Read More About Bond Notes
Tucked in the latest Monetary Policy was a statement by the RBZ governor that 80% of card infrastructure in Zimbabwe was EMV compliant. The governor also expressed his preference for technology as he clearly believes EMV has superpowers.
Further to the cyber security guidance, market participants are required to migrate to Euro MasterCard and Visa (EMV) standards to ensure enhanced card security features to curb cyber related activities. Currently, over 80% of the card infrastructure in the country is now EMV compliant. Financial institutions should therefore ensure that all cards issued in the market are EMV compliant by 31March 2019.
What’s EMV anyway?
So what exactly are these EMV cards you ask? Well, let’s begin with the acronym, it is one of those peculiar acronyms in tech such as PHP or SIM card. It used to stand for something but now it is a proper noun in its own right. It stands for a more secure payment system that makes use of smart cards ( as opposed to magnetic strip cards) that come with an integrated chip.
Originally EMV, the name which is used to reference the standard by the RBZ, used to stand for Europay, Mastercard, and Visa, the three companies that created the standard between 1993 and 1994. The standard is now managed by EMVCo, a consortium which is equally controlled by Visa, Mastercard, JCB, American Express, China UnionPay, and Discover.
Although there are various implementations of EMV they all involve a card with a chip embedded in it. Some cards such as the one issued by StanChart have a magnetic strip for backward compatibility purposes. Whereas traditional cards are swiped an EMV card has to be inserted. The chip has terminals, not unlike those of a SIM card which allows the terminal to read it.
How do they boost security
Technology has advanced to such an extent that magnetic clone machines can clone and create a copy of an ordinary magnetic strip card with relative ease. Zimbabwe has been hit but issues of card cloning in recent years as we became a relatively cashless society.EMV cards are much harder to clone.
Infrastructure is there but banks
Note that the governor said EMV infrastructure is now at 80%. Most banks cards, especially from those lite accounts, are very much magnetic. However, 80% of the readers deployed out there can now handle EMV cards which is good news. To be honest I have never had problems with my EMV card.
When you see the list of things Zimbabwe imports it’s hard for you not to wonder: Is there something this country does not import? I mean we import everything from razor blades to matches. Now you can add another thing to the list: USD currency.
Yes, we import those flashy dollar bills and most of them come from South African banks. Unfortunately due to something called risking all South African banks have either terminated access to this cash or have given notice that they will no longer be supplying Zimbabwean based banks/businesses with USD cash. This process is called de-risking.
According to William Manimanzi, the Deputy director of financial markets at the RBZ the problem could be a result of the fact that we are not officially a dollar economy
I think you are all aware that we are not officially dollarised. When I say officially dollarised, I mean we don’t have an agreement with the United States that we were going to adopt their currency officially; we just unofficially dollarised. What that means is it’s very difficult to bring cash (USD) in this economy. Where do we get our cash (USD) from? Ordinarily, we import from South Africa and most of the banks due to what is called risking issues, have now given us notice that they can no longer provide our own local banks with cash. So we are in a catch 22 situation. The only bank remaining was FNB and they gave notice in December that they will no longer supply our own local banks with cash.
This is hurting money transfer agents
This has been hurting money transfer agents a lot. Recipients expect to receive their hard currency intact. This means money transfer agents have been importing cash into Zimbabwe and they are getting this cash from South African banks who like dominos have been terminating MTA (money transfer agents) accounts.
This has also hurt the gold business as small scale miners expect to be paid in cash.
What is de-risking
According to World Bank:
Global financial institutions are increasingly terminating or restricting business relationships with remittance companies and smaller local banks in certain regions of the world – a practice that is called “de-risking.”
de-risking is indeed happening in pockets around the world – but its effects are unevenly distributed, with some regions more affected than others.
Smaller countries with limited financial markets are particularly vulnerable to de-risking practices, and we are seeing evidence of this, notably in the Caribbean region.
and why are South African banks doing it ( lots of paragraphs where I am speculating)
All the banks seem to be saying that there is a risk associated with dealing with MTAs and Zimbabwe’s banking institutions. According to the World Bank de-risking is happening because banks are weighing the cost and benefits of maintaining these accounts/relationships and coming to the conclusion that they are not worth the trouble.
For Zimbabwe, it can really be a sanctions issue. ZIDERA is ostensibly about targeted sanctions blah blah but the truth is that it sends the message that Americans have not really warmed up to our government or Zimbabwe as a whole. If you didn’t know, the truth is that the U.S pretty much has a hegemony over the world’s financial systems. The fact that we are using the USD without permission puts us further firmly within their grasp.
MTAs already suffer from a high risk of what are known as ML/TF (money laundering/terrorist financing ) risks. Experience has shown that terrorists and money launders and fraudsters make constant use of these channels. Banks these days live in fear of being on the receiving end of the wrath of anti-money laundering/counter-terrorist financing (AML/CTF) regulatory authorities.
When it comes to fining banks for violating agreements and rules the U.S is really up there. They really know how to crack the whip. The risk for SA banks that someday they may be summoned and having their behinds lashed is probably too high compared to what the accounts are bringing in.
Zimbabwe’s Central Bank has issued a set of operational guidelines “to provide instructions and direction to persons intending to carry on the business of Bureaux de Change in Zimbabwe.”
The guidelines include details regarding;
Regulatory framework
Licensing and Registration of Bureaux De Change
Operational Modalities for Bureaux De Change
Corporate Governance
Supervision and Monitoring of Bureaux De Change
Renewal of Bureaux De Change Licences
Penalties
Revocation of a Bureau de Change Licence
Duty to knowledge of applicable legal and regulatory instruments
A widow in Bulawayo lost over $40 000 in the most recent case of card cloning. Timmy Kuzhangaira allegedly cloned her late husband’s bank card details before going on to complete a number of transactions in retail.
It’s been reported that whilst Ms Watson (the widow) was paying for her groceries in a Bulawayo supermarket Mr Kuzhangaira copied her card number and the pin code. He then cloned the card and “went on to make several POS transactions at various retail outlets in Bulawayo and in the process prejudicing the complainant of $43 013.77” the prosecutor.
After Ms Watson discovered the illegal transactions she went on to report the matter to the police who accidentally bumped into Kuzhangaira at the same shopping centre which seems to have become his hunting grounds. He was found with 5 other cloned cards in his possession.
The trial of Kuzhangaira has been remanded to March 20 and he was granted $500 bail.
The RBZ taking action
Card cloning has become a bone of contention for both banks and law enforcement agents who are not well positioned to deal with cybercrime. In 2018 there were over 150 card cloning cases and on the back of such dire news, the ZRP came out and said they were not prepared to deal with cybercrime. In fact, they said they were far from ready…
The Reserve Bank of Zimbabwe (RBZ) is the central bank of Zimbabwe. Its offices are located at number 80 Samora Machel Avenue in Harare. The Reserve Bank of Zimbabwe operates under the Reserve Bank of Zimbabwe Act, Chapter 22: 15 of 1964. The Act provides... Read More About RBZ
The Zimbabwe Republic Police is the country's law enforcing and maintaining organ. It was established in 1980 evolving from the Rhodesian Police and incorporated members from both the Rhodesian and the nationalist forces. It operates under the Ministry of Home Affairs. Read More About ZRP
Last month the RBZ governor finally let the bond and RTGS balances loose. The government was essentially dispensing with the fiction that bond notes were on par with the USD due to the fact that they were backed by some mysterious Nostro facility.
The hope was that the introduction of a market based rate instead of an arbitrary government set rate would result in better inflows of foreign currency. Well, according to the RBZ and other government officials forex inflows have improved but as with all things no one is saying by how much.
In the absence of concrete official information we are left to speculate and rely on other sources. The governor dropped a hint during today’s hearing. A significant amount ( $24 million in US dollars we assume) has already changed hands ever since the interbank market rate was introduced. The information was seized upon by analysis’s at Equity Access who went on to extrapolate other information.
FOREX TRADING UPDATE About $24 million exchanged hands on interbank market since it was promulgated. Average $2.4m a day. Zim average Import deduced daily forex demand $$19.6m a day. 11.03.19 – interbank mid rate showing upwards pressure
If this is to be believed it means $2.4 million dollars is changing hands everyday. One thing to note though is that only big formal businesses seem to be taking part in the foreign market with small and informal businesses left to rely on the black market. Most banks, as they have done before, simply refuse to sell foreign currency to individuals.
A joke is often told on social media of how Tindo ( or what’s her name?) after reading the latest Monetary Policy quickly visits his/her bank in search of forex. She/He patiently waits in line until it is her/his turn to be served on the information desk. She asks how s/he can get forex to boost her/his business. She/He is then told: You are a willing buyer but you missed the part about the willing seller. You are willing but we are not.
Is this rate really free
Today Mr Mangudya was quarried about by parliamentary committee on Budget, Finance and Economic Development on various issues. One of these issues was the exchange rate. How on earth did he come up with 2.5 when the black market was using 3.5-4.0? Like a skilled public servant he gave a non-answer answer.
Well, if we remove the social media part we can turn the question back to him. Why should the Zimbabwean Economy be governed by someone who just arbitrarily declare the exchange rate? Because despite being higher than what it was there remains a cloak on how the interbank rate operates exactly. In fact it has the government’s fingerprints all over it. Despite all upwards pressure it has remained strangely pretty much stagnant.
One indication that all is not well is the fact that the black market has hardly budged from its pre-floating position. This is despite the governor’s promise that this would actually come down. As my colleague so ably points out, it appears that the black market rate is more market based than this so-called interbank rate.
The government continues down the opaque path
One of the reasons why Zimbabwe ranks so low in business indexes is because of the opaque way it is governed. The RBZ has not been different. They structured the interbank trading exercise in such a way that they are the center of everything. Yet they have systematically starved us of information which is being fed to us by way of morsels dropped in passing.
In the past few days the rate of exchange between the recently introduced RTGS$ and the US dollar has been steadily increasing at the interbank foreign exchange market. When trading started a couple of weeks ago, the rate was set at 1:2.5 (USD:RTGS).
The rate seemed stuck there for a little while but movement has been noticeable in the past few days. Today the rate is at about 1:2.65. The RBZ governor said he expected the RTGS dollar to grow a little weaker in the short term and then firm up against the USD in the medium term.
Rates on the parallel market have been fairly stagnant, with a US dollar being traded for about RTGS$3.55. Looks like the official market is catching up to the parallel market.
The central bank is not releasing volumes of trade in any consistent manner. When the governor appeared before the parliamentary committee on finance he mentioned that to date $12 million had been traded.
I have to be honest prior to the announcement of the latest Monetary Policy we all knew that the Bank needed to float the bond/RTGS and allow them at market rates, I was sure they would not do it. You see our current in general government and the RBZ in particular hate not being in control.
I was pleasantly surprised when the RBZ governor said they were floating the bond note. I was sceptical but hopeful. Several weeks later I have to say I am predictably disappointed. The RBZ has been quite guarded when it comes to releasing essential data such as trade volumes.
Of particular concern is that it would appear the RBZ has a hand in setting the so-called Intermarket rate. RBZ deputy director for financial markets William Manhimanzi is quoted as saying the following:
“We can’t just allow the exchange rate to depreciate because of people that took positions on the exchange rate. Our expectations are that banks act in a responsible manner and do not necessarily put pressure on the exchange rate”
Allowing the rate to depreciate in accordance with market forces is exactly what the RBZ said they were going to do. For them to say they are not allowing it is plain ridiculous. It means the problems that prompted this policy adoption will continue to haunt the bank and the economy. Mr Manhimanzi seems to be vaguely aware of this:
Obviously, people are still holding on because of the 2,5 exchange rate, which was perceived to have been a fixed exchange rate and for those that follow the exchange rate you will see it moving trending upwards going forward.
With all due respect if the RBZ is not allowing the exchange rate to move upwards then it’s not a market rate. A market rate is determined by the market and not by some bureaucrat. The rate is being kept artificially low by the government, the RBZ and banks in another act of legal robbery and it’s not difficult to work out why.
The Monetary Policy also mandated that several classes of exporters forfeit their foreign currency earnings at this lacklustre rate. Exporters are also mandated to make use of their proceeds within specified short periods. Failure to do so will see them relieved of their forex at the same rate.
The dirty secret
According to the deputy director:
To date over $33 million has been traded on the interbank foreign exchange market.
It seems everyone from the RBZ is spewing all sorts of figures when it comes to trade volumes. I think part of the reason why they are embarrassed to release the actual figures is simple. All these millions are coming from the said legal robbery. No one is willingly walking into a bank and handing over their USD willingly.
In fact, if you walk into your bank right now looking for forex you will most certainly not get any. In fact, no one I know has been able to get forex at these ridiculous rates. Banks and bureau de changes are quite happy to rob you of your forex at the same rates.
This document provides authorised dealers with an administrative framework by which to operate and implement measures found in the Monetary Policy Statement announced in February.
The contents of the document include information on:
Establishment of an Interbank Foreign Exchange Market
Export Receipts Retention Thresholds
Export Receipts Retention Periods
Administration of Foreign Currency Accounts
Discontinuation of Export & Diaspora Incentive Schemes
Registration of foreign liabilities and legacy debts
The WSBI Africa Regional Group Meeting hosted last week in Vic Falls seems to have bore some fruitful impact in boosting Cyber Security budgets locally as the country is said to have received $400 000 from the International Telecommunications Union.
The money is supposed to be allocated towards fending off cyber security threats:
Very soon we will set up a computer institute research committee which will have a national approach on how to respond to cyber threats.
We are working with ITU which has offered $400 000 towards this project and setting up of the committee
Alfred Marisa – POTRAZ Deputy Director General
What’s gone wrong thus far
Details regarding when the committee will be setup and what exactly they will set up to do have not yet been disclosed but it’s no surprise that there are steps being taken towards cyber crime which has been spreading like a veld fire over the past few years.
The only preventative action which has been taken is the submission of Cyber Security Policies by banks at the end of last month. Or at least they were supposed to submit them. Starting from today banks are also supposed to be issuing out EMV compliant cards which are supposed to be harder to clone and thus a safer option than what some people have in their pockets on a daily basis.
John Mangudya’s tenure as RBZ will not be coming to an end as most wanted. Instead, the RBZ announced that he will be getting a new 5-year term in office. If you don’t like the guy for whatever reason, you’re stuck with him for the foreseeable future.
The Cabinet Secretary Misheck Sibanda released the following press statement announcing the extension:
Extension of the term of office of the Reserve Bank Governor of Zimbabwe: Dr John Panonetsa Mangudya
The Chief Secretary to the President and Cabinet, Dr Misheck J M Sibanda, has announced the Extension of the Term of Office of the Reserve Bank Governor of Zimbabwe, Dr John Panonetsa Mangudya by His Excellenxy. the President of the Republic of Zimbabwe, Cde E D Mnangagwa, acting in terms of Section 14 of the Reserve Bank Act [Chapter 22:15]. The extension takes effect from1st May 2019 for another five years
Dr Misheck Sibanda
It’s pretty easy to understand why most Zimbos will NOT be delighted by this news. Whilst most of us are certainly not economists, Mangudya is known as the guy who brought Bond coins into effect. At the time of their introduction they were supposed to be a mechanism that would allow consumers to get change instead of sweets.
The bond coins served their purpose for a while but now like a wolf in sheep’s clothing the bond coins have changed form multiple times and today they have adopted what seems like their final form, the RTGS$.
To make matters worse, the Governor was the same person who had pledged that he would resign if the bond notes failed. In his book, and the President’s book as well, it seems the bond notes were a success and thus Mangudya will continue going to work for the next 5 years…
Of course, Twitter was ablaze with hot takes (nothing quite like the Twitter hot-take eh?), and here are some of them:
Are these the actions of a government that wants to implement reforms? At a time when you expect them to make appointments that will instill confidence in the market they make such a terrible appointment! Who will feel confident to put their money to be superintended by Mangudya pic.twitter.com/9iaOrE9CV8
Bloomberg: How do you provide assurances that foreign investors can get their money out? Mangudya: By opening up the economy we need more companies coming into the country,so others will come in and others will be going out.
Anyone who thought Mthuli Ncube was capable of delivering on his reform agenda, think again. How can anyone take #Zimbabwe seriously when ED is unwilling or unable to cut dead weight like Mangudya at the Reserve Bank? https://t.co/yz0Qvi9wpL
Mangudya is bad very bad for the job, but he’s more pragmatic and less naive than Mthuli Ncube. In an ideal world, we wouldn’t have both of them near our money, but we need a counterbalance to Mthuli’s exuberance, Mangudya provides it. pic.twitter.com/pWbVYHOoob
I really wonder if they ever think about the future. Not immediate future but a year from now We can never ever win with this country #Zimbabwepic.twitter.com/Iu8h1U46ge
— Makomborero Haruzivishe (@MakomboreroH) May 3, 2019
If you’re looking for a positive response among the tweets, trust me, I was as well…
Reserve Bank of ZimbabweJohn Mangudya
The Reserve Bank of Zimbabwe (RBZ) is the central bank of Zimbabwe. Its offices are located at number 80 Samora Machel Avenue in Harare. The Reserve Bank of Zimbabwe operates under the Reserve Bank of Zimbabwe Act, Chapter 22: 15 of 1964. The Act provides... Read More About Reserve Bank of Zimbabwe
John Panonetsa Mangudya is an economist and the current Reserve Bank of Zimbabwe governor. Mangudya, who sits on many local and international boards .He was made RBZ governor after the expiry of Gideon Gono's term in 2014. He had been CBZ Holdings Ltd Chief Executive... Read More About John Mangudya
The Reserve Bank Of Zimbabwe has announced (through their Twitter) that they will be drawing down on a US$500 million fund to supply the Interbank foreign currency exchange market on the 20th of May.
Government through the Reserve Bank of Zimbabwe is drawing down US$500 million on Monday, 20 May 2019, to supply the interbank forex market to meet the forex payment requirements of business and individuals.
— Reserve Bank of Zimbabwe (@ReserveBankZIM) May 18, 2019
This amount shall go a long way to stabilise the exchange rates and prices of goods and services in the economy – J P Mangudya Governor.
— Reserve Bank of Zimbabwe (@ReserveBankZIM) May 18, 2019
What does this solve?
The Interbank forex market was created in order to tame the black market but thus far it’s failed woefully. The thinking behind the creation of the Interbank market was that as long as it could quench the demand of the forex, the black market rate would be forced to compete with it and thus remain low or marginally higher.
There is now an interbank market, so anybody that required forex should go to the interbank market. But, what is clearly happening is that the interbank market doesn’t have enough dollars for everybody. We have participated there. I do not have the numbers, but we are not getting as much as we would like.
Pearson Gowero, Delta CEO
This makes the Interbank “rate” similar to the “1:1” rhetoric we heard for the better part of a year. A make-believe tool used by the government to try and mask some of their inadequacies. Unfortunately, over the past few weeks, the rate has spiralled out of control and panic has increased leading to this drawdown.
Where is the money coming from?
Some of the questions many of us have are pretty simple. Where was the money all along and why wait until things have gone to the dogs to inject it into the economy?
Well, here’s what the Finance Minister has to say about that:
The US$500 million new facility raised from international banks will increase the supply of foreign currency for imports, for industry and other sectors.
Mthuli Ncube
The statement has many questioning just how true the RBZ’s claims are. Back in April, StanChart was fined US$18 million for just for handling transactions for state-owned firms and sanctioned individuals.
By now it’s a known widely that ZIDERA makes it nearly impossible for Zimbabwe to access new funding or debt relief from the World Bank, the IMF or any multilateral finance institution where the US has influence. Maybe they got it from somewhere else…
As with most promises made by government in recent times, tomorrow will arrive and the impact of the US$500 million draw down will be there for all of us to see…
The news of the moment definitely is that the Zimbabwean Dollar has made a come back of sorts. The come back goes like so: what we were told to call RTGS dollars in February this year, we are now told to call it Zimbabwean Dollar. The real change is that this ‘Zimbabwean Dollar’ is now declared to be the sole legal tender in Zimbabwe effectively moving from the multicurrency regime of the past 10 years.
So is it against the law to hold the USD?
Well, the answer to that is no. The authorities are still encouraging you to open the so called nostro accounts to keep any forex you have. I do not hesitate to advise you against such. The flip flop in something as basic as the name of the currency itself should tell all of us not to trust the said authorities.
Legal tender simply defined: Coins or banknotes that must be accepted if offered in payment of a debt.
The ‘new’ Zim dollar being the sole legal tender means anyone selling goods and services in Zimbabwe is obligated to take your money when you come with the Zim dollar to make payment. This doesn’t mean that you can’t pay in USD if you so wish and the person selling is willing to accept the hard currency just like no one will arrest you for exchanging your goats for other goods and services directly.
This is of course a technicality that the government will not want explored because the whole objective of the regulation is to stop you and I from using any forex we may have to pay for stuff locally.
Whichever way the worst is that you can only keep USD as ‘storage’
Even if we are to interpret the new regulation in the most strict manner, the worst it can mean is that you can keep your USD but you can’t use them to buy stuff in Zimbabwe. Your hard currency will just be a store of value which you convert whenever you want to buy.
Below is the letter to Bank CEO’s from the Reserve Bank of Zimbabwe regarding the re-introduced Zim dollar and the banning of forex
ATTENTION: CHIEF EXECUTIVE OFFICER
Dear Sir/Madam,
DIRECTIVE
ISSUED IN TERMS OF SECTION 35 (1) OF THE EXCHANGE CONTROL REGULATIONS STATUTORY
INSTRUMENT 109 OF 1996
Introduction
1.1 Reference is made to the Reserve Bank of Zimbabwe (Legal Tender)Regulations, Statutory Instrument 142 of 2019 issued by the Minister of Finance and Economic Development and the Press Statement announced by the Governor of the Reserve Bank on 24 June 2019 on Strengthening the Interbank Foreign Exchange Market. In order to operationalize these measures, Authorised Dealers are advised as follows: –
Removal of the Multi-currency System
2.1 Authorised Dealers are advised of the discontinuation of the multi-currency system with effect from 24 June 2019. All domestic transactions shall now be settled in Zimbabwe dollars, the sole legal tender in Zimbabwe which is represented by bond notes and coins and electronic currency i.e. RTGS dollars.
2.2 Effectively, the use of foreign currency to settle domestic transactions has been removed and the basket of multi-currencies, that is, USD, GBP, ZAR, EUR, BWP, JPY, CNY, AU$ and Indian Rupee shall only be used to settle international payments or those services
exempt from this requirement as per Section 3 of Statutory Instrument 142 of 2019.
2.3 Similarly, the pricing on all domestic contracts, including the displaying of prices in all outlets in Zimbabwe, shall be effected and/ or displayed in the local unit of account.
3. Administration of
Foreign Currency Accounts
3.1 Authorised Dealers are advised that the operation of Nostro FCAs shall remain in place for purposes of receiving offshore funds and to facilitate foreign payments. The following Foreign Currency Accounts shall remain in operation;
3.2 The Nostro
FCA (Domestic) was funded from local foreign exchange transactions. In view of these
new policy measures where the Zimbabwe dollar shall be the sole legal tender, existing Nostro FCA (Domestic)
shall be allowed to receive deposits up to 30 June 2019 to enable account
holders to deposit their cash holdings realised from trade undertaken before 24
June 2019.
3.3 In cases where local service
providers e.g. transporters, consulting firms, etc,are paid from offshore sources
for services rendered locally, such funds shall continue to be deposited into the Nostro FCA (Domestic).
3.4 Funds in all these accounts listed in Table 1 above will retain their foreign currency status and shall continue to be utilised for the settlement of international transactions. In cases where the holder of such an account intends to settle domestic transactions, they shall be required to liquidate their foreign currency account balances to the interbank on a willing seller willing buyer basis.
4. Foreign Currency Cash withdrawals
4.1 Authorised Dealers are advised that unconditional authorization for foreign currency cash withdrawals by corporates has now been removed. However, withdrawals by the same on deserving cases such as road toll fees are now permissible only on a case by case basis subject to the application of Know Your Customer (KYC) and Customer Due Diligence (CDD) principles on the withdrawer. These principles to be applied should be in line with Anti-Money Laundering and Counter Finance of Terrorism AML/CFT regulatory requirements and best practice.
4.2 Authorised Dealers are reminded of the limit of export of cash in person or baggage which remains at US$2 000 per exit as per Exchange Control Directive RS119 dated 04 August 2017.
4.3 For individuals, the current policy shall remain in force with Authorised Dealers also required to apply the usual KYC and AML/CFT standards.
5. Administration of Legacy Debts
5.1 Authorised Dealers are hereby directed to transfer to the Reserve Bank, all RTGS Dollar balances in relation to legacy debts registered with the Reserve Bank in fulfillment of Exchange Control Directive RU28 dated 22 February 2019.Measures to Enhance the Interbank Market
6.Retention Thresholds and Period for Export Receipts
6.1.1 Authorised Dealers are advised that the retention thresholds for export receipts and tobacco and cotton offshore loan drawdowns shall remain in place as previously communicated under Exchange Control Directive RU28 dated 22 February 2019. For ease of administration, the retention thresholds are restated as follows;
6.1.2 Authorised Dealers are also reminded that the retention period within which an exporter is entitled to utilize their retained export receipts remains within 30 days from the date of receipt. As per Exchange Control Directive RU28 dated 22 February 2019, all unutilized balances shall after the 30 day retention period, be offloaded into the interbank market at the prevailing market exchange rate and reported to Exchange Control on the Daily Return on Interbank Trading Transactions.
6.2Foreign currency for the interbank market
6.2.1 In order to enhance interbank market trading, Authorised Dealers are advised that the Reserve Bank shall sell 50% of the export retention due to the Central Bank to the interbank market. Letters of Credit shall continue to be utilised for importation of essential commodities that include fuel, cooking oil and wheat.
6.3 Removal of US$10,000 limit on
Bureaux de Change transactions
6.3.1 In order to deepen the operations of the
interbank foreign exchange market and to enhance the operations of Bureaux de
Change, with effect from 25 June 2019, Bureaux de Change are now permitted to buy and sell foreign currency without any limit in terms of the amount.
6.4 Removal of the 2.5% Margin for
Interbank Market Transactions
6.4.1 Exchange Control advises of the immediate removal of the 2.5% margin on foreign exchange trades in the interbank market which was previously communicated under Exchange Control Directive RU80 dated 22 May 2019.
7.Payment of Small Scale Gold Producers
7.1 Authorised Dealers are advised that the current gold marketing framework for small scale gold producers shall continue to apply. For those small scale gold producers with Nostro FCAs, the funds shall not be subjected to the 30 day retention period.
8.Payment of Large Scale Gold Producers
8.1 Authorised Dealers are advised that the current payment arrangements for large scale gold producers shall continue to apply and the retention thresholds have remained the same as previously communicated by Exchange Control in Exchange Control Directive RU28 dated 22 February 2019.
9. Administration of Nostro FCAs for Tobacco Growers
9.1 In terms of Exchange Control Circular Number 5, dated 16 April 2019, tobacco growers are entitled to receive part of their sales proceeds in United States Dollars, deposited into their Nostro FCAs. 9.2 Authorised Dealers are advised that this arrangement shall continue and the accounts shall continue to be administered as per the current arrangements, where tobacco growers are paid 50% of sale proceeds in foreign currency into their FCA. However, in the event that the tobacco grower intends to meet local obligations, the sale proceeds must first be converted to Zimbabwe Dollars through the interbank foreign exchange market.
10. Treatment of Offshore Loans Drawdowns for Financing Tobacco Production
10.1 Authorised Dealers are advised that tobacco merchants shall retain 100% of funds drawn down for the purpose of financing tobacco production. 10.2 Where there is need for disbursement of working capital to the contracted farmer, the proceeds shall be deposited into the grower’s Nostro FCA (Special) which can be opened with a bank of their choice. The tobacco grower shall then liquidate the proceeds from the Nostro FCA (Special) to meet local obligations.
11. Administration of Payments to Cotton Growers
11.1 Authorised Dealers are advised that the current cotton marketing arrangements shall continue to operate.
12.Downstream Payments by Exporters
12.1 Authorised Dealers are advised that the operation of transitory accounts shall be maintained. These accounts are, however, not transacting accounts, but shall be used for distribution of export proceeds to respective downstream beneficiaries.
12.2 In order to maintain or operate transitory
accounts for exporters, Authorised Dealers shall seek prior Exchange Control
authority.
12.3 In light of the above, Authorised Dealers are advised that producers who sell their produce for consolidation for export e.g. fresh cut flowers and macadamia nuts shall be eligible to access their foreign currency through the Special FCA framework. Funds in these accounts, shall be utilised for the settlement of international transactions. In cases where the holder of such an account intends to settle domestic transactions, they shall be required to liquidate their foreign currency account balances to the interbank on a willing seller willing buyer basis.
13.Review of Export Documentation charges
13.1 In order to promote ease of doing business and reduce cost of export, Authorised Dealers are advised that all export documentation shall be available free of charge.
14. Trading of Dual Listed Shares
14.1
Authorised Dealers are advised that with effect from 25 June 2019, any investor
who shall purchase a dual listed share on the Zimbabwe Stock Exchange (ZSE) shall only be allowed to sell
the share on the ZSE or on an external stock exchange after a vesting period of ninety
(90) days from the date of initial purchase.
14.2 For
investors wishing to uplift dual listed shares from external bourses for purposes of selling the shares
on the ZSE, such sales shall only be allowed to be executed after a period of ninety (90)
days from the date of registration on the ZSE.
14.3 For investors who have already acquired dual listed shares on the ZSE and are desirous of disposing of such shares, Exchange Control directs that such sales can only be allowed in instances where the shares have been purchased on or before 20 March 2019.
14.4 The procedures for trading in dual listed shares on the ZSE as previously communicated by Exchange Control on 26 May 2016 shall remain operational.
15.Disbursement of International Remittances
15.1 In order to encourage and facilitate the flow of foreign currency, diaspora remittances shall continue to be received in foreign currency. The recipients shall have the option to receive remittances in cash or sell their remittances on a willing seller willing buyer basis to Bureaux de Change and Authorised Dealers or deposit into Individual Nostro FCA.
16.Exchange Control Returns
16.1 Authorised Dealers are reminded of the need to ensure compliance with this Directive and to continue submission of Exchange Control Returns as required. Non-compliance with any of the afore-stated provisions is a violation of the provisions of Section 5 (i) and (ii) of the Exchange Control Act (Chapter 22:05) which require persons to comply with, among others, the terms or conditions of any permit, authority, permission, direction, notice, order or other instrument made or issued under or by virtue of the Act.
Michael Joordan who used to be the CEO of FNB recently spoke of Zimbabwe’s ever-rising inflation and what the country can do to address these problems.
Joordan blamed the government and its bad choices for putting the poor in a compromising position:
Inflation forces the poor to spend their income on basic necessities such as food and shelter leaving little to invest in education or acquiring inflation resistant assets.
Once again the poor are overwhelmingly being made to pay for their bad government. Those who hold real assets like land or currencies that are trusted are not affected.
Michael Joordan
Mr Joordan suggests the adoption of a stablecoin (a stable cryptocurrency) could help with some of the economic problems:
One of the major benefits of cryptocurrencies is that they are governed by mathematical algorithms rather than by humans who decide how much money to print.
We know exactly how much Bitcoin has already been created and how much will still be mined. We have no idea how many Zimbabwean dollars will still be minted
Michael Joordan
Whilst there may be a level of certainty regarding how many coins can be created the volatility of crypto’s (Bitcoin in particular) show that it’s not as simple. This would probably be managed by the fact that stable coins can be backed by currency, assets or other commodities.
A Zimbabwean stablecoin would have to be backed by something other than the Zim Dollar since the regulators in charge of that have previously proved untrustworthy with printing machines.
Jordaan admitted that adoption of a stablecoin is unlikely and he felt that the next best outcome would be rand adoption:
Sadly, the best we can hope for is that they follow a more conventional approach and adopt the currency of their largest trading partner, South Africa’s Rand as their de facto transacting medium.
This would at least reduce inflation in Zimbabwe to the 3 – 6% range and enable economic growth to rescue Zimbabwe.
There are also considerations to make regarding the rural population (which outnumbers urban population); how would they access this stablecoin? There are a lot of things to consider in order to assess just how good of an idea this is overall.
More unsettling however is the fact that due to the government’s approach to policy, even if the government adopted a stablecoin, they would probably botch the announcement – leaving citizens to figure out how that would work too.
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Over the past two weeks, forex rates decided to take up space exploration as a hobby and have thus rocketed in a manner that has left businesses and the public in shock.
The central bank is responding to all this by changing the way Bureaux De Changes operate. The RBZ has sent out a press document titled Refinement of the Operations of Bureaux De Change and it looks to solve the current problems as follows:
1. The current interbank foreign exchange market is currently governed by the willing seller – willing buyer concept, without making reference to the interbank foreign exchange rate.
2. In order to bring sanity on the operations of the Bureaux de Change, the following shall strictly be enforced: –
(a)All the interbank trades shall be processed at a margin of plus or minus 7% of the interbank mid-rate;
(b)The Bureaux de Change shall only sell foreign currency cash to individuals for foreign travel, upon submission of a passport. The current cash limits for Personal Travel Allowance of USD300 per day, per travel, and up to a maximum of USD10,000 per year, should strictly be adhered to. The Bureaux de Change are, henceforth, required to endorse passports of travelers who would have purchased foreign currency;
(c) The Business Travel Allowance of USD400 per day, and up to a maximum of 7 days per travel, shall be strictly monitored;
(d)The Bureaux de Change shall be required to strictly adhere to the daily reporting requirements to the Central Bank; and
(e) The Bureaux de Change are required to visibly display the interbank exchange rate on their FX rate boards.
3. The Financial Intelligence Unit (FIU) and Exchange Control Division shall immediately mobilise resources to enforce compliance by all foreign exchange market players.
4. Non-compliance by any Bureau de Change shall result in the imposition of heavy financial penalties, as well as revocation of the operating licence.
RESERVE BANK OF ZIMBABWE – 20 September 2019
The only problem with our central bank is that as in most cases they are reactive and not proactive. If these measures are effective in solving the current spiral, expect a few problems to arise down the months and then a panicky central bank to once again attempt to put out the blaze.
PS: My pessimism at the effectiveness of these measures is a result of being part of the Zimbabwean circus for 21 years…
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(@KingJayZim) 
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