Zimbabwe will introduce local “bond notes” and impose limits on daily bank withdrawals as part of measures to ease an acute cash shortage in the country, central bank governor John Mangudya said on Wednesday.
The “bond notes” will be backed by the same $200 million Africa Export Import Bank (AFREXIM) facility used for the bond coins already in circulation and will be introduced in over two months time, Mangudya said.
Daily withdrawals will now be limited to a maximum of $1,000, Euro 1,000 and R20,000. Withdrawal limits were set at $10,000 in January when cash shortages first emerged on the market.
Mangudya has also announced that, with effect from May 5, 40 percent of all new US dollar receipts will be converted to rand, “in order to restore and promote the wide usage of currencies in the multicurrency basket.”
Zimbabwe is facing a worsening cash crunch over recent weeks, as a widening deficit and a stronger US dollar weigh on the economy.
The bond notes will be in denominations of $2, $5, $10 and $20.
The southern African country’s trade deficit has widened from an average of $400 million 10 years ago to $2,5 billion in 2015.
It ditched its hyperinflation-ravaged currency in 2009 for a multi-currency system largely anchored on the US dollar, and Mangudya ruled out its, saying the fundamentals are not right. However, the step has left the RBZ unable to manage liquidity through printing money.
Mangudya also announced a priority list to guide banks in making foreign currency payments, with the highest priority being given to imports of critical and strategic goods such as basic food stuffs and fuel, health and agro chemicals that are not available locally.
“This policy stance will ensure that the available foreign exchange resources are efficiently appropriated towards those sectors of the economy with capacity to generate the much needed liquidity to fund the economy’s foreign payments,” he said.
Second priority will be given to bank clients in the productive sector who engage in critical and strategic imports.
Payments to foreign universities and colleges as well as other borrowing clients engaged in the importation of non-strategic goods are at the bottom of the list.
Capital remittances from disposal of local property, funding of offshore credit cards and payments for non-commercial vehicles have been categorized as non-priority items.
In order to restore and promote the wide usage of currencies in the multi-currency basket Mangudya said with effect from May 5, 40 percent of all new US dollar receipts will be converted to the South African rand at the official exchange rate.
The latest measures show how limited the RBZ’s options are now without the use of printing money as a monetary policy tool.
Earlier on Wednesday, Finance Minister Patrick Chinamasa told Parliament that a combination of the fall of the Rand in South Africa, Zimbabwe’s main trading partner, the high cost of production, and Zimbabwe’s trade deficit was behind the cash crunch. The government believes increasing Rand usage will help ease shortages.
“In 2013 currencies which were circulating InZimbabwe were something like 60 percent USD and 40 percent South AfricanRand. Progressively the South African Rand circulating in our economyhas declined to virtually zero. Now thatincreased the demand on the USD. We are using the USD to financedomestic transactions paying wages, buying tomatoes,” Chinamasa said.
“What we are trying to redress now is that the dominance of the USD which is making our economy a uni-currency regime and not a multi-currencyregime must be redressed.”
Chinamasa conceded that cash shortages would remain as long as Zimbabwe’s budget deficit was not narrowed.
“For as long as we import more than we export, for as long aswe are using a currency which is appreciating when we have neighboursthat have currencies which are depreciating, we become a mopping house.People come to mop up our US dollars,” Chinamasa said.- Source