DID the Reserve Bank of Zimbabwe governor make a precipitous climb-down on the bond note in his Monetary Policy Statement delivered on October 2? What does this all mean? What on earth is an RTGS FCA? How different is it from a Nostro FCA? Both FCAs are denominated in USD so can somebody tell me what’s the difference between the two. If they are really different what’s the exchange rate between the two FCAs? Maybe I jumped the gun. Are they both FCAs? By the way, FCA is an acronym for foreign currency account. So is an RTGS FCA really an FCA?
What does the governor mean when he says, “This policy measure is expected to encourage exports, diaspora remittances, banking of foreign currency into the Nostro FCAs and to eliminate the commingling or dilution effect of RTGS balances on Nostro foreign currency accounts.” Wait a minute, did the governor just say RTGS balances have a dilutive effect on foreign currency accounts? What a climbdown from the man who introduced the bond note on a 1 to 1 basis with the United States dollar and remained adamant despite sustained pleas from the masses.
I wish I had my own show like John Oliver. I bet your TV will be bleeping all the while with some kind of language that really shows how blown off I am. Yes of course, I would make lil Wayne blush. The climb-down is good though; a very productive climb-down from the constant state of denialism that has been stalking our monetary authorities. At last they have admitted that “their USD” has a dilutive effect on the “real USD.” The admission is tacitly implied though. It’s never express. Ummm, cheesy!!! Maybe before I ramble too much I should pen a more cultured introduction to my ramblings…..
In Zimbabwe, people criticize for the sake of criticizing. It’s as if people feel like they have a “moral” obligation of some sort (never mind your definition of moral) to be adding their voices to the growing murmurings and demonstrate some loathing of the status quo. Not that the murmurings are unwarranted. They are very much warranted and are a sign of a growing displeasure with the socio-political system that has stripped citizens of the much-needed economic liberties. Who wouldn’t want to buy a US$5 item on Amazon without making an application at the bank first? Good luck if they allow you. My desire is to steer clear of unreasonable criticism and hopefully make a compelling analysis based on my understanding of the situation from my vantage point.
In a society that is not as tolerant to divergent views, I have to apologise to some in advance. However, I have to highlight that my analysis is born out of my understanding of the situation and does not intend to discredit any individual or any political party. My analysis is what it is; an economic analysis not a political commentary. Unfortunately politics and economics are twins; akin to Cain and Abel. One of them is a bully with a smaller brain and always resorts to anger and violence when subjected to the litmus test. This analysis might make you realise who you are, Cain or Abel.
In all honesty, Zimbabwe needed a “contractionary” monetary policy to stem the ever-increasing money supply growth. To be fair, the good doctor delivered that albeit he laced it with some venom. The venom is in the split between RTGS FCAs and Nostro FCAs. The need for a contractionary MPS seems contradictory considering that we need to boost aggregate demand hence local production hence economic growth but if you look at the size of our RTGS balances you will appreciate that the governor was spot on. He somehow had to fix a problem that many might argue is of his own making.
We are suffering from inflationary pressures because we have too much RTGS$ in circulation never mind how he blamed the money changers for inflationary pressures in the MPS. In my view, the out of control RTGS balances are a Chinamasa/Mangudya legacy issue. They can apportion the blame between themselves but it is what it is and I have the numbers to prove it.Anyway, this article is not about apportioning blame. To a greater extent, it is about discussing the suggested solutions to our common problems. Apportioning blame is fun but will not work. Some say its Mugabe, others sayits Tsvangirai, the Queen, Rhodes, Chamisa, Gono, Grace, war vets. The list is endless depending on our diversity as Zimbabweans so we can never find solutions in a blame game.
But honestly though, how do you account for an increase in money supply (M3) of RTGS$5,189,204,000 from US$3,951,683,000 in October of 2013 to RTGS$9,140,887,000 in June of 2018 and not have the economic growth to show for it? We are talking about an increase of 131% over a period of 5 years. I got all the numbers from the RBZ Economic Research Publications (https://www.rbz.co.zw/economic-research-publications.html) so in as far as that source is concerned, my figures are accurate.
Between Mangudya and Chinamasa, I’m not really concerned who gets 100% of the blame; 10% of it or 30%. They can sort that out over drinks but yah, they both know what they did or did not do and they are both culpable in my view. By presiding over the rampant issuing of TBs, they jointly oversaw the de-dollarisation of Zimbabwe and the printing of a quasi-USD RTGS which then had to be monetised via the bond note and the masses were robbed off the real USD.
To curb the ever-growing RTGS balances, the governor introduced a statutory reserve requirement with effect from November 1, 2018, at a level of 5% on RTGS FCAs. I applaud him for that. The continuation of the RBZ Savings Bond is also a welcome development to deal with this excess “RTGS liquidity.” The bond had raised about RTGS$1,5 billion as at 31 August 2018. Another positive was the Governor’s admission that we have a fiscal crisis in Zimbabwe. To me that’s a very bold move and puts pressure on Mthuli Ncube to put his house in order to complement the MPS.
There were flashes of the truth here and there and for a nation that is allergic to the truth, its somehow encouraging. Mthuli should be kept under pressure to manage treasury bills and budget deficits. He should start by right-sizing the civil service. In his own words, the governor said, “Measures in this Monetary Policy Statement would therefore need to be supported by a package of measures to reduce fiscal imbalances that are exerting pressure on money supply and hence inflation as a result of increased consumer spending which in turn requires increased foreign currency inflows. The country needs to live within its means.” Mthuli, I hope you were taking notes. We need to eat what we kill.
Zimbabwe seems to be run on deliberate information asymmetries and I believe it is a publicly held secret that our political elite profit from perpetuating such asymmetries. The issuing of TBs has this far been shrouded in secrecy. I don’t think anybody really knows the number of TBs in issue and their maturity profiles let alone their coupons. The disparities are large even for paper with similar maturity profiles. It is therefore very encouraging when the Governor announces that we will be having an auctioning system for treasury bills. The market had long struggled with the lack of a proper yield curve for the valuation of these TBs. Well, I hope that’s another problem solved. Well done to the Governor.
Now coming to the lies. Firstly, how on earth does the governor include in his Executive Summary statements that are far from the truth. It hurts me when we are taken for fools who, assumedly, can’t analyse the reality of any situation. Maybe I’m allergic to this persistent denialism or political correctness. How on earth do you put false statements in the MPS like there is “there is increased business confidence in the economy”, “peaceful conclusion of the electoral process” ,“the country is showing resilience to the adverse inflationary pressures and escalating foreign currency premiums.”
Truth is we did not have a peaceful conclusion to the electoral processes and emphasising on peace is a mockery to all Zimbabweans who lost their lives and those who are loyal to the flag. Our economy is a far cry from experiencing increased business confidence. The cholera outbreak did not make it any easy psychologically especially considering the government had money for MPs’ cars and had to crowdfund for cholera. Let’s just face the truth head-on. Kubatana kumeso ngakumbomira. Our skilled labour is increasingly looking abroad for greener pastures. As for the escalating foreign currency premiums, there is a bloodbath out there and the economy is not being resilient at all contrary to the Governor’s assertions. At premiums of close to 130%, the bond note is gone. The article on Zim’s inflation published on the Forbes website yesterday cannot be discounted. The resurfacing fuel queues show that the economy is in doldrums yet the authorities deny all day long.
Coming back to the RTGS FCA and Nostro FCA issue. The MPS is implying a “new definition” of the multicurrency system which includes the Zim Dollar that has been smuggled through the backdoor. Calling it the RTGS FCA does not make it a foreign currency. It appears to me the RTGS balances are now an officially recognized currency in the “basket of currencies” which is why banks are now required to split their RTGS holdings from the USD holdings.
If my observation above is correct, it is welcome admission of the truth but it has far reaching legal ramifications for a country that has a Statutory Instrument that equates the Bond Dollar to the US Dollar on a 1:1 basis. If you lie under oath that goats are the same as sheep, how then do you expect to separate goats from sheep without causing a legal debacle? Then comes the killer punch (I watched Anthony Joshua vs Alexander Povetkin so I think I have some understanding of what a killer punchis). Anyway, here it is and I quote, “The relationship between the two categories of the FCAs shall continue to be at parity.” Then I died laughing…..hahaha. Come on, where are the emojis.…. I’m dead guys. Gone!!! So why separate balances with a 1:1 exchange rate.
The Bond Dollar is the face of the RTGS balances and their underlying treasury bills. How then can the dear Governor ask for the separation of RTGS FCA from Nostro FCA if the lies of their parity are perfectly enshrined in the 2 page Statutory Instrument (SI) 133 of 2016. If we had a properly functioning legal environment in Zimbabwe, I guess some good lawyers would have a field day in court at the expense of the governor but nay…Who would want to be asked to produce primary evidence and the residue thereof that the bond note is not equal to the “Nostro USD.” So there you go, I don’t think the Governor will have sleepless nights.
To finish this off, the governor might have created something else for accountants. What does the separation of RTGS and Nostro mean? What’s the functional currency of Zimbabwe? Is it RTGS or is it the real USD? I think its the RTGS and it has been that for a long time.
Jade Takudzwa Tsokodayi is a development finance professional with an accounting and auditing background