Industry calls for Zim$ strengthening

CAPTAINS of industry have implored the Government to create policies that boost demand for the local currency while expressing concern over the resurgent exchange rate volatility emanating from the increasing dominance of foreign currency transactions at the expense of using the local dollar.

The latest creep in inflationary pressures has already doubled the disparity between the official exchange rate of about US$1:ZWL$1 212 when compared to the wild parallel market rate of above 1:2 000, which most businesses use to index prices.

The resultant spiral in prices has sparked widespread consumer outcry, prompting the Government to take drastic measures, including relaxing import restrictions and offering 100 percent retention on domestic foreign currency sales as part of macro-economic stabilisation measures aimed at cushioning ordinary people.

The Government has also committed to further entrench promotion of the use of the domestic currency by Government agencies for their domestic transactions by ensuring that levies and fees charged by its affiliated agencies and service providers, are to be paid for in local currency.

In its latest currency analysis update, the Confederation of Zimbabwe Industries (CZI), the largest lobby group for manufacturing companies, stressed the need to strengthen the local currency to curb wild exchange rate movement, which tends to erode purchasing power and strains aggregate demand for businesses. “The continued depreciation of the local currency is causing persistent price hikes and rejection of local currency in some quarters as it becomes a nightmare to price in the local currency,” said the industry body.

“It is not surprising that some products in formal retail shops are now being sold exclusively in USD, as replacement pricing becomes difficult in local currency.”

CZI noted the recent gold-backed digital tokens introduced into the market last week but said the success of this measure would be measured against the extent to which it would be able to mop out excess liquidity from the market and cause stability in the parallel market exchange rate.

Already, the digital tokens mopped out $14 billion from 135 bids received on the first issue, the Reserve Bank of Zimbabwe said on Friday. The gold-backed digital tokens just like the Mosi-oa-Tunya gold coins have a vesting period of 180 days and can be redeemed afterward based on the international gold price as determined by the London Bullion Market Association (LBMA) PM fix payable in either local or foreign currency.

While acknowledging the importance of embracing digital coins as an avenue for businesses and individuals to store value instead of demanding the US dollar, CZI said the increase in inflation implies that the originally envisaged inflation policy path with respect to local currency inflation could miss its set targets.

It suggested that unless some drastic policy measures are introduced by authorities, such as having some tax heads paid exclusively in ZWL$, which would create some demand for the local currency, there will be no quick solution to arrest inflationary pressures.

“Although excess ZWL$ liquidity could be mopped through the digital gold tokens as well as the physical gold coins, this will not help create demand for the local currency, which is needed for its stability,” reads part of the inflation and currency development update report.

“The success of the gold-backed digital tokens would be measured against the extent to which they would be able to suck out excess liquidity from the market and cause stability in the parallel market exchange rate.”

CZI also indicated that for the digital gold coins to fully achieve its goals it would hinge on how authorities would help rein in market confidence that the token is fully backed by some physical deposits.

Last week, Finance and Economic Development Minister Professor Mthuli Ncube reiterated that the Treasury was pleased with the uptake of both the gold coins and gold-backed digital tokens by the market and assured the public of the confidence in both instruments, which remain fully backed by physical gold reserves.

Minister Mthuli Ncube

CZI added that transparency on the technology that would be used regarding the ability of holders to keep track of the developments with respect to the digital gold coins and the ability of the digital tokens to meet the transactional demand for money, as reflected by the ability for the ordinary consumer to purchase goods and services in shops using the digital tokens would be critical.

The central bank said gold-backed digital tokens will have prescribed asset status and liquid asset status and be accepted as collateral and tradable while settlement will be done in local or foreign currency and issuance will be in a two-phased approach. The tokens will be available for sale through banks in both foreign currency and Zimbabwe dollar, said the RBZ.

Meanwhile, the Government has also committed to maintaining macroeconomic stability and the elimination of harmful and destabilising arbitrage conditions that have pervaded the economy at the expense of the generality of citizens.

In order to promote the banking of domestic sales in foreign currency, the central bank will with effect from this week exempt all proceeds from domestic sales in foreign currency from the 15 percent surrender requirement.-chronicle