HARARE – The Reserve Bank of Zimbabwe (RBZ) is facing criticism from economists and market analysts who accuse it of implementing de facto price controls through its recent directives on exchange rate determination.
This comes after the RBZ issued a press statement clarifying its stance on the floating exchange rate system and the pricing of goods and services.
The controversy lies in the RBZ’s insistence that the exchange rate determined by authorised dealers (banks) in the interbank market, based on the willing-buyer willing-seller (WBWS) principle, should be the sole guide for pricing goods and services.
Governor John Mushayavanhu stated that no other entity outside the interbank market should determine the exchange rate.
“For clarity, ‘market determined rate’ simply means a rate determined on the interbank foreign exchange market based on foreign currency supply and demand.
“The exchange rate that is determined in the foreign exchange market by banks is the one that should be used to guide the pricing of all other goods and services in the economy.
“Therefore, no other business entity outside the interbank market should determine the exchange rate,” Mushayavanhu stated.
However, economists like Tinashe Murapata argue that this directive effectively reintroduces price controls, albeit indirectly.
He points to the disparity between the RBZ’s desired exchange rate of around ZWG22 to the US dollar, and the market rate of 32-37 ZiG, which supermarkets were using.
This, according to Murapata, reveals an attempt by the RBZ to dictate market behaviour and enforce an artificial exchange rate.
“The RBZ public statements were moral suasion, behooving the market to recognise the rate of 22. And not the crazy rates of 32 & above,” Murapata stated through thread on his X handle.
“RBZ is reneging on their promise of a floating exchange rate by imposing a priority list induced interbank market restricted to only banks.”
In an interview with Nehanda Radio, Chenayi Mutambasere, another prominent economist, echoed these concerns, highlighting the practical difficulties of enforcing the RBZ’s directives.
She argued that as long as the central bank lacks sufficient foreign currency liquidity to meet market demand, businesses and individuals will continue to rely on parallel market pricing.
She also pointed out the issue of trust and confidence in the formal banking system.
“As long as the bank doesn’t not have sufficient foreign currency liquidity to meet the demand, businesses and individuals will still resort to parallel market pricing – this policy is nice but not enforceable.
“The RBZ has no stamina to insist on this! The market may comply in the immediate to short term but medium to long run will see compounding disparities as a result,” she said.
“In addition The RBZ is saying only banks should set the exchange rate, but in practice, many businesses in Zimbabwe use alternative rates to hedge against currency instability.
“Without strict enforcement, businesses might continue to set their own rates based on market realities rather than the official rate.
“Many businesses and individuals lack confidence in Zimbabwe’s formal banking system due to past currency volatility, inflation, and policy shifts.
“Unless the RBZ ensures consistent access to foreign currency at transparent rates, businesses may continue relying on informal markets.
“This policy is not enforceable and any attempts to rail road the economy by forcing these bank rates will be detrimental as it will erode confidence and trust.”
The RBZ’s claim that there are no forex shortages, evidenced by a recent sale of US$20 million in the interbank market, has been met with skepticism.
Murapata argues that this amount is insignificant compared to the actual demand for foreign currency and the historical monthly allocations under the previous auction system.
He further highlighted several underlying economic issues that contribute to the market’s skepticism, including:
Exporters not being fully paid their ZiG from 30% retention, rollover of NNCDs given to importers and exporters, the government’s US$1.2 billion debt to suppliers and treasury’s default on US$177 million Treasury Bills.
These factors, according to Murapata, create a situation where a street premium is inevitable, and the RBZ’s attempts to control the exchange rate are seen as unrealistic and detrimental to market confidence.
The economist further argue that the RBZ’s actions create a situation where retailers are forced to accept ZiG, while facing the reality that many of their costs, such as fuel for generators, are denominated in US dollars.
This predicament could lead to retailers increasing their USD prices to maintain their ZiG revenue.
Murapata believes that dollarisation could restore stability and confidence in the financial system by eliminating arbitrage opportunities and bringing informal market funds back into the formal banking sector.
“The government of Zimbabwe requires a coordinated approach across all ministries. With Western aid freeze across the board it’s safe to assume Zimbabwe requires full dollarisation as a means to defend itself,” Murapata said.
“Full dollarisation will not end all problems but it will take away the arbitrage opportunities which are a huge cost to the economy. But it will get the financial markets working again. With time bank deposits increase as money flows back into formal channels.
“There is US$1-$2bn that trades as cash in the informal markets. This money avoids the friction and distortions in our banking system. Full dollarisation will get this money back as bank deposits and credit multiplier. Will the RBZ listen?”
