September 28, 2022
  • September 28, 2022

Zimdollar Makes Commendable Gains | The Sunday Mail

By on August 14, 2022 0

The Sunday Mail

business journalist

The economy has largely stabilised, particularly since late last month, following aggressive government action to curb market indiscipline, and market watchers are confident that the latest intervention to introduce more small denominations of gold coins will likely anchor local currency and price stability.

The Reserve Bank of Zimbabwe (RBZ) tightened the screw on money supply growth and introduced gold coins on July 22 to mop up excess liquidity and provide an alternative asset to hedge against inflation.

According to the RBZ, 4,475 gold coins worth $3.7 billion had been sold as of August 10, 90% of which were purchased in foreign currencies.

“Strong demand for gold coins will help to mop up liquidity in the market and thereby strengthen demand and improve the value of the local currency,” RBZ Governor Dr. John Mangudya said in the monetary policy statement. medium term last week.

“The Bank will continue to release additional gold coins to the market on an ongoing basis based on demand.”

Old Mutual believes that gold coins could be an effective instrument to curb inflation and stabilize the Zimbabwean dollar.

“Gold coins seem well-intentioned and their appeal as a store-of-value investment instrument seems solid in the context of inherent monetary policy concerns. Despite this, and as with any other policy initiative, the terms implementation are key,” he said in a research note.

Their statute as a prescribed asset and the ability for investors to purchase them in local currency, he added, present additional support for gold coins beyond their intrinsic value.

Tax authorities have also weighed in to back up the gains made so far.

The Minister of Finance and Economic Development, Mr. George Guvamatanga, last week requested line ministries, government departments and agencies to review their supply contracts and place them under the willing buying rate framework, willing seller, which is now used for transactions.

There are concerns that some contracts were pegged to parallel market rates and therefore led to currency instability.

“In this regard, the Treasury immediately suspends all payments to MDAs (Ministries, Departments and Agencies) pending your submission of reports of the findings of the due diligence exercise on all current and future contracts with particular emphasis on the pricing,” Mr. Guvamatanga said.

“Going forward, you are required to seek Treasury approval on contract prices to ensure effective control over the use of public resources in accordance with the (Public Financial Management) Act.”

The government made huge payments in local currency to companies carrying out infrastructure projects.

Finance Minister Prof. Mthuli Ncube recently reported that the government has noted with concern that some vendors who supply goods and services to public institutions are funneling the funds they receive to the gray market. The Financial Intelligence Unit – a unit of the central bank – is now supposed to track and review all payments made to government suppliers to establish how the funds were used.

“Where it is determined that funds have been funneled into the illegal foreign exchange market, the affected bank accounts will be frozen indefinitely pending criminal investigations and prosecution of the affected companies and their directors and officers,” it said. Minister Ncube.

Earnings

Now trading at an average rate of $1 to $800 compared to $1 to $900 at the start of July, the Zimbabwean dollar is gaining value in the parallel market.

It is believed that the Treasury succeeded in creating demand for the local currency by solving money supply problems.

The Confederation of Zimbabwe Retailers (CZR) Chairman, Mr Denford Mutashu, said it was “quite encouraging to note that the monetary authorities have understood where the current volatility in the exchange rate is coming from.”

“I can say authoritatively that there has been significant local currency stability as retailers who have shunned local currency are now demanding it, albeit at good rates as well,” Mr. Mutashu.

Economist Mr Tinevimbo Shava said the Zimbabwean dollar had made considerable gains in the parallel market as tight liquidity conditions weighed on business.

“It’s not business as usual anymore because the market is very dry,” he said.

The government has since pledged to streamline its procurement processes, which have been a channel for supplying money to the parallel market through government suppliers.