Fixed Forex Exchange Rates to blame for Black Market Boom!

by | May 24, 2020 | Opinion | 0 comments

Munyaradzi wekwaChivi

There is blood on the floor. The local currency is losing value at breakneck speed. On Friday we witnessed the RTGS dollar trading at 1:75 with the U.S Dollar, up from Thursday night’s 1:63 and 1:55 on Wednesday night. The Old Mutual Implied Rate is at 94.5. Ladies and gentlemen, we do not have to look far to see the cause. In fact, the person behind all this is RBZ Governor Dr John Panonetsa Mangudya.

We have heard a lot of reasons as to what is causing the rate to fall until finally both Dr Mangudya and the learned Professor Mthuli Ncube, Mimister of Finance and Economic Development no less admitted that they do not know the cause. First, it was Zimbabwe Stock Exchange shares for Old Mutual and Seed Co causing currency distortions. Stopping their fungibility across the borders did not control the slide, in fact it got worse. Now we are told mobile money platforms especially EcoCash are behind the crushing exchange rates.

Is Ecocash really the problem? Can you trust an economist who says demons are the cause of our currency woes? And yet, that is what Reserve Bank Governor Dr Mangudya told the whole nation let alone the world recently in Parliament. What makes a currency easy to manipulate? Is currency fluctuation a cause or an effect? What is the root cause of rent seeking and why does it thrive in Zimbabwe now than before? The Ministry of Finance and Economic Development and Reserve Bank of Zimbabwe must put an end to the chaos im their respective corridors. Their piecemeal solutions and unending reversal of good policies caused the mess. The firefighting will not end until they fix the fundamentals that Professor Mthuli pointed out before he took the job.

The black market in Zimbabwe can easily be reduced by 60% but our economists are not willing to listen to solutions that can bring an end to it. Bookish economics are making things worse than they should be. Our Economists are applying economics from the old books that do not address our current problems. It cannot be business as usual and normal laws of economics do not apply in Zimbabwe. The black market could be eliminated by Monday if Prof Ncube and the praying and demon blaming Governor removed currency controls and allowed banks to use the correct rate.

The two gentlemen should realize that money changers are filling a lacuna which they created in the first place. When RBZ decided in their wisdom or rather lack of it to FIX the exchange rate, they essentially closed the Formal Forex Market and allowed the money changers to fill the gap. Law enforcement agents will not work, good policies will. How we moved from the 1:1 nonsense to 1:25 idiocy is baffling. We need to face the real issue, controls especially in a market that is not formal will not work.

There is a real crisis unfolding, the black market rate is galloping the value of the incomes and earnings of people which have not changed and cannot change daily to match exchange rates that are influencing the prices of commodities. The ongoing Covid-19 induced lockdown has worsened the situation. Yes, we have said the moneychangers are filling a lacuna. What is beyond understanding though is why they are out in the streets controlling the rate when they should be on lockdwon? This shows that despite all arguments, the blackmarket is being fuelled by RBZ itself. No argument can convince one otherwise. It simply makes no sense.

They continue to follow same tried and failed methods instead of doing the most logical thing and liberalize the market and let the market determine the rate all on its own. Why fix the rate at all unless there is a criminal intent from the fixers? I have always advocated for free markets, not the Communist hogwash being implemented by the Reserve Bank through its weird policies. As long there is no FREE and Transparent Official Forex Market, the Black Market will rule the day.

Minister Ncube promised a Reauters Currency trade system in his budgetary statement. At one point we had a formal interbank trading system in place. The interbank was trading at around 1:28 while the black market was at 1:33 or so, before the foolishness began. Dr Mangudya fixed the rate at 1:25 and this is when the bloodbath began. Will the government lose ANYTHING if Zimbabweans get official platforms to sell and buy forex? No, the government will not lose anything! In fact, jobs will be created, forex supply will increase, exchange rates will stabilize and revenue in the form of taxes will accrue to Treasury. RBZ must just focus on controlling money supply.

The government somehow thinks that it can control prices by “pegging/fixing” the exchange rates. They refuse to learn how the same principle failed horribly in the past when it was attempted. IT DOES NOTWORK, IT NEVER WORKED AND IT WILL NEVER WORK!

Allow free markets in Zim

Zimbabweans should be able to walk into a Bank or Bureau de Change to buy or sell forex. There is NO benefit from closing that option. There is NO REASON to delay that option. Why create unnecessary hardships for people? Communism failed, it will always fail. Arresting money changers will not work. Market problems are solved by market solutions, not by force. It never worked before and it will never work in future. This is a market problem requiring market solutions. Punishing Ecocash’s Jabangwe and Chibi will not work. It will only increase scarcity of forex on the streets and increase the rates even more! We should actually be encouraging more people to sell forex so that the supply increases and rates fall!

Dear Dr Mangudya and Prof. Mthuli Ncube you cannot close the Interbank Market (literally and through over-regulation) and expect the forex black market to die. You can’t print money recklessly and expect inflation to be steady. The explanation of cash supply instead of money supply is what you should have worked on way before trying to foist the new notes on the public. Trust issues are at play here and nobody trusts Reserve Bank of Zimbabwe and worse its Governor who told the world he would resign if Bond notes failed but is still hanging on to the job even after stating clearly that he is clueless as to the causes of the Economic problems! Lets be a normal country with proper economics.

The whole financial sector from Mobile money to ZIPIT and RTGS are part of the problem which traces back to Central bank. Why back to RBZ? Because they are the ones responsible for putting forex in the formal sector. When they fail to do so, people will be forced to source it from informal markets.

Here is some free information to Dr Mangudya, Zimbabwe National Payment System
71% value of transactions went through RTGS platform in the first week of May. 19% went through Ecocash and this includes genuine transactions.
While the later has compliance issues, blaming it for the currency plunge will not be a fair thing to do. The transactions that matter are done on the ZIPT platform. Anyway, in June 2018 Ecocash was forced to freeze almost all agent lines in Harare. But transactions were still happening through personal lines, the agents just added the extra costs to the rate.

It should be noted that being a good Bank Executive does not make one a Governor of the Central Bank as the two are totally different. The country needs someone who understands Economics quite well to be at the helm of RBZ. Dr Mangudya is incompetent and his record speaks.


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