The most sensitive topic in Zimbabwe for the past two decades has to be that of inflation, and this decade has begun on the same trajectory. Any policy announced by Treasury and the Reserve Bank of Zimbabwe is met with talk of inflation in the society. It was not any different for the recently announced USD50.00 per person to be churned out by the bureaux de change monthly.
RBZ’s Monetary Policy Committee (MPC) at its last seating in August announced its resolution on increasing financial inclusion. “Further liberalising the operations of bureaux de change to promote financial inclusion by allowing them to process small value foreign currency transactions of up to US$50 per person per week on the basis of individual identities, with charges and commissions levied by the bureaux de change not exceeding 10% per transaction,” the statement read.
Many citizens have labelled the development as an inflation driving action, and to be honest they have seen a fair share of currency volatility and are now afraid to change or ‘better’ any working formula. As two leaders would put it, “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man,” said President Ronald Reagan, as Prime Minister Margaret Thatcher, said, “the lesson is clear. Inflation devalues us all.”
However, it is important to note that Zimbabwe’s inflation stems more from exchange rate disparities between the official bank rate and the informal inflation rate. There is a scarcity of foreign currency be it for personal consumption or corporate use, which has led to a thriving parallel market.
When companies began getting foreign currency on the auction last year in June, inflation began to subside as prices were stabilising due to a consistent cheaper source of foreign currency. Inflation fell form a high of 737.26% in June 2020 to close at 50.25% in August 2021, thus shedding a mammoth 687.01 percentage points in 14 months. In the same period, the month-on-month inflation fell from a high of 35.5% to 4.19% in August 2021. However, the month-on-month inflation has begun to pick up as the auction began experiencing delays in disbursing allotted funds, from an all time low of 1.58% in April 2021 to the current 4.19% at close of August 2021.
The small shock has been caused by two factors mainly the delay in auction allotment disbursements which have resulted in some firms going back to the parallel market, and the introduction of the new ZWL$50.00 bond note. Demand for the scarce greenback has increased in the past 3 months and the MPC even resolved to expunge the backlog valued around US$170 million, and is believed to have increased in the current month of September.
Going back to the issue of the bureaux de change US$50.00 per person sales, we see that the economy is in a shortage of foreign currency, which is what has caused the movement from ZWL$145.00 per dollar to over ZWL$160.00 per dollar. The recent policy addresses the shortage of the demand side albeit to a minimal but is what the market needs in its current status.
The sales are there to dilute the composition of money supply in the economy by sucking the excess local currency and pumping the much-needed foreign currency, giving the economy another source of foreign currency. This then reduces the local currency chasing dollars in the streets, leaving less chance of the parallel market rates running away. With citizens opting for the much cheaper foreign currency, importers are likely to increase their holdings of foreign currency releasing some pressure from the auction.
However, questions of sustainability will always be brought into light, with people questioning the source of the foreign currency that is being sold by bureaux. This being a valid question, the sources of bureaux foreign currency holdings are many including, tourists and remittances.
A point which we should be working towards is a point where one is able to purchase a minimum of around US$200.00 from the bureaux, because the US$50.00 is less than most of the population’s rental needs. We hope the initiative is the beginning of many more such innovations and interventions to make like for an ordinary man better, in order for them to feel the ‘good news’ of recovery that authorities have been saying in the past 10 months. – Harare