Multi-currency is here to stay: Reserve Bank of Zimbabwe

The Reserve Bank of Zimbabwe says it is working hard to promote, restore and sustain the functionality and use of the multi-currency to mitigate concentration risk on the United States dollar

The multi-currency regime will work alongside bond notes, which will have equivalent unit value to the US dollars, to create an alternative medium of exchange only accepted in Zimbabwe.

It is expected that bond notes will curb illicit financial outflows, which the RBZ put at a minimum of $1,8 billion for 2015 alone. The RBZ believes that the multicurrency remains the ideal monetary system at the moment, until the country attains key macroeconomic fundamentals to sustain its own currency.

RBZ Governor John Mangudya told our Harare Bureau that the central bank is working tirelessly to promote the multicurrency system to spread demand for cash to other currencies.
Multi-currency is here to stay: Reserve Bank of Zimbabwe
“The multicurrency system is here to stay; we think that it is the way to go. Banks must have a multicurrency system,” he said. Mangudya said currencies like rand should be as much transaction currencies, as is the US dollar at the moment.

The US dollar accounts for over 95 percent of local transactions, despite the rand accounting for 70 percent of imports. This has created concentration risk on the greenback.

Predominant use of the dollar for all transactions in Zimbabwe has created concentration risk on the currency, resulting in serious shortage of US dollar notes at the banks.

This is despite the fact that the country uses a basket of foreign currencies among them South African rand, Botswana pula, Euro, British pound Sterling, Japanese yen, and Chinese Yuan.

The shortage resulted from a situation where Zimbabwe, which suspended its own currency in 2009 due to hyperinflation, is losing more hard currency than it is generating through import/export imbalances and illicit outflows.

Sources say government will direct parastatals and other state entities to accept payment in other currencies under the multicurrency system to mitigate the prevailing cash crisis.

Anyone intending to make payments to entities and institutions directly or indirectly controlled by State would be able to approach banks for approved currencies to make such payments.

Our Harare Bureau is reliably informed that government could issue the directive to State-owned entities this month. This comes as government is also persuading retailers to also adopt the rand pricing model to ease the cash shortage.

Government sources also said that retailers are being urged to voluntarily set prices in the South African rand, being the currency from where Zimbabwe procures the bulk of its imports, to spread concentration of pressure among other units.

Measures the government has taken to ease the shortage of cash, will function alongside bond notes, backed by and limited to a $200 million African Export and Import Bank facility. The notes will rank equal in unit value to the $200 million bond.

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