This is in contrast to the denial our authorities lived in for the past 2 years. In short, the President can make regulations under the Act controlling virtually the entire economy of Zimbabwe. This is a dangerous situation which can lead to the capture of the RBZ and the whole financial sector. Zimbabwe faces critical shortages of medicines, food, fuel and electricity. The Zimbabwe dollar is, for instance, still stronger than the Indian rupee, a currency for the world’s seventh largest (US$2,7 trillion) economy. This is re-dollarization by any other name.The public has rejected the mono currency. The Reserve Bank of Zimbabwe Governor Dr. John Mangudya presented an optimistic 2018 Monetary Policy Statement on 8 February 2018 which complements the largely austerity driven New Economic Order Budget Statement presented by Finance and Economic Development Minister Patrick Chinamasa on the 7th of December 2017. But if they have not so consented then there may be a problem because there is no law that allows the Reserve Bank to cancel their registration simply because of a change in policy. I have addressed the gaps and shortcomings of the RBZ Monetary Policy Statement, now i turn to the Myths. Zimbabwe’s hyperinflation episode brings to the fore the importance of ensuring that the Central Bank is independent in executing its mandate of influencing the Unsustainable fiscal deficits and public debt levels created the spectre of fiscal dominance in many countries, leading to high and volatile inflation and elevated risk premia on government debt. The Exchange Control (Amendment) Regulations, 2019 (No. WHAT NEW MONETARY POLICY STATEMENT MEANS TO AVERAGE ZIMBABWEAN Prof Mthuli Ncube Path to Prosperity As we work to put Zimbabwe’s economy back on its feet, recovery is the word. It has lost value due to hyperinflation. Bureaux de change are registered by the Reserve Bank in terms of the Exchange Control (Authorised Dealers with Limited Authority) Order, 2015. Local dollar electronic balances and bond notes and coins would become “RTGS dollars”, part of Zimbabwe’s multi-currency system and trading at an exchange rate fixed by market forces. All these incentive schemes were cancelled [which is presumably what “removed” is supposed to mean] the day after the Governor gave his monetary policy statement –virtually without notice, in fact. But even if the two instruments were legally valid, it is doubtful if they succeed in implementing the Governor’s monetary policy in at least four respects: 1. At 390,757 square kilometers (150,871 square miles), Zimbabwe is SI 32 of 2019 was made under the Exchange Control Act, which gives the President power to make regulations relating directly or indirectly to gold, currency, securities, exchange transactions, as well as the control of imports and exports, transfers and settlements of property, payments, and transactions in relation to debts. Obviously, many people were left with unanswered questions concerning some of the pronouncements that were made. February 24, 2020. THE Monetary Policy Statement presented by Reserve Bank of Zimbabwe governor John Mangudya this week is a damp squib which fails to substantively address the prevailing crisis and is far removed from the reality on the ground. In his Monetary Policy Statement the Governor said: “The RTGS dollars shall be used by all entities (including government) and individuals in Zimbabwe for the purposes of pricing of goods and services, record[ing] debts, accounting and settlement of domestic transactions.”. Even though the Reserve Bank’s directive repeats the Governor’s statement about the compulsory use of RTGS dollars, the directive is not a generally binding law. We urge the government and the Reserve Bank therefore to go through all the existing exchange control legislation, repeal whatever is outdated or unconstitutional and then re-enact whatever needs to be kept. The SI goes on to state that the Minister is deemed to have authorised the Reserve Bank to issue RTGS dollars which are “lawful tender”, and to have specified that existing electronic balances in bank accounts (other than Nostro accounts) are deemed to be in the new RTGS dollars. In the Gover… On a positive note the RBZ has made an undertaking to protect free funds held in individual and corporate FCAs. Multi-tier pricing is and remains perfectly legal. The Monetary Policy Statement failed to address this problem. However, as expected the governor presented much of what the Monetary Policy Committee … The RBZ simply says the bank will put measures to smoothen the functioning of the interbank market. The much awaited monetary policy statement presentation has come and gone in a few minutes. RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya will soon present his Monetary Policy Statement amid high expectations for a cocktail of measures to arrest the deepening economic crisis characterised by price instability, low disposable incomes and rapid depreciation of the Zimbabwean dollar. To give effect to the Governor’s monetary policy statement, the Reserve Bank’s directive announced the cancellation of all existing bureaux de change licences. As the RBZ statement reveals, in 2019 Foreign Direct Investment (FDI) dropped from usd 717 million in 2018 to usd 250 million in 2019. (adsbygoogle = window.adsbygoogle || []).push({}); © All Net Africa 2019. The Reserve Bank of Zimbabwe (RBZ) will maintain its focus on price and exchange rate stability in 2020, in pursuit of a target of a y-o-y inflation rate of 50.0%, and broad stability of the Zimbabwe dollar, by year-end. The figure is inflated due to firstly the indexing i referred to and secondly due to hyperinflation. At the moment there is legislative confusion. However, for the sake of transparency names of the Debtors and Creditors must be published by the RBZ. The gap between the interbank market and the parallel market continues to widen. Paragraph 9.3 of the directive reads: “In order to, therefore, align the existing operational Bureau de Change licences to the Monetary Policy announcement, all current Bureau de Change licences registered under Tier 3 of the Authorised Dealers with Limited Authority have been cancelled to allow re-registration and issuance of new licences in line with the new Bureau de Change Guidelines.”. The opposite is true. Denominating the existing RTGS balances, bond notes and coins in circulation as RTGS dollars in order to establish an exchange rate between the current monetary balances … An inter-bank market would be established for trading RTGS dollars with foreign currencies on a willing-seller willing-buyer basis. Twenty per cent of all new foreign currency taken by Zimbabwean businesses from local customers must now be liquidated at the official exchange rate, when deposited in a domestic foreign currency bank account, as part of the measures introduced by the Reserve Bank of Zimbabwe (RBZ) in the latest monetary policy statement. It will be the second bite of the cherry since 2008. Although this directive seems to have circulated on social media it has not been published in the Gazette nor has it been served on all traders, accountants and other people who are presumably expected to abide by it. This morning the Reserve Bank of Zimbabwe (RBZ) governor, Dr John Mangudya presented the first half, 2020 Monetary Policy Statement (MPS) amid huge expectations for remedies to soothe the increasingly anxious financial market. All the people know is that prices are increasing unabated.The jury is still out as to how the RBZ will contain inflationary pressures emanating from fuel price increases, electricity charges and other food imports. The parallel market is driving prices upwards and stoking hyperinflation. Veritas has not seen the conditions of the incentive schemes so we cannot comment on the validity of the cancellations, but we do hope the government and the Reserve Bank took competent legal advice before announcing the cancellations. Public Expectation Number 2: Bringing Back the United States Dollar. The Mid-Term Monetary Policy Statement (MPS) came a time when the country recently introduced its sovereign currency, the Zimbabwe dollar, which effectively reactivated the monetary policy leg of the economic management tool box. “Legal tender” means a currency which, if offered in payment of a debt, discharges the debt unless the creditor and the debtor have specifically agreed otherwise. This Act is clearly a case of Parliament delegating its primary law-making power in contravention of section 134 of the Constitution, and no attempt is made to limit the power or to specify the principles and standards applicable to the regulations. The IMF says Zimbabwe will register a negative economic growth of -5.2% in 2019, that means Zimbabwe is officially in a recession, for the first time since 2008. Many other Garages have followed suite. 2. For example in the Property Sector, rentals and Sales are in usd. 2. Click to download the full statement Related Articles Snippets From The 2020 Monetary Policy Statement At The RBZ Today The Reserve Bank of Zimbabwe (RBZ) lacks the reserves to maintain the value of the local currency, meaning that demand for US dollars will persist. This is a dangerous situation for an import dependent country. Fiscal and Monetary Policy are like Siamese twins -one cannot exist without the other. Inflationary expectations operate under perfect markets and assumes that all individuals and economic agents are rational and that there is no information assymetry. Estimated at 600% per annum Zimbabwe’s inflation rate is alarming. Thats why tomatoes and chickens are charged in usd. In terms of section 46 of the Reserve Bank Act, the Governor is obliged to present a Monetary Policy Statement setting out measures to, inter alia, controlling Money Supply, Targeting Inflation for price stability, managing the exchange rate, stabilizing the financial sector, setting the bank rate and so on and so forth. — Picture by Memory Mangombe The review of capital requirements will ensure that financial institutions will have enough capital to backup deposits. In the fast food sub- sector products are charged in usd. The IMF had initially predicted a 4.2% economic growth in October 2018, but on the flipside the … Reserve Bank of Zimbabwe Governor, Dr John Mangudya. Download of Zimbabwe’s 2019 Monetary Policy. This is theoretical and not empirically tested in Zimbabwe. THE Monetary Policy Statement presented by Reserve Bank of Zimbabwe governor John Mangudya this week is a damp squib which fails to substantively address the prevailing crisis and is far removed from the reality on the ground. Directives issued by the Reserve Bank become binding only if they are published in the Gazette or if they are served on the persons to whom they apply, or if it is proved that the persons concerned actually knew about them [see section 39 of the Exchange Control Regulations, 1996]. Those currencies remain legal tender therefore and can be used interchangeably with RTGS dollars for all the purposes mentioned by the Governor. The analysis of the results is given in Section 6 and the summary and policy recommendations of the study in Section 7. It does not require a rocket scientist to know that the 50% target is a pie in the sky in view of all these inflationary pressures. A similar problem may arise in relation to paragraph 7.1 of the Reserve Bank directive, which states: “In line with the new administrative arrangements … the Export Incentive Scheme, the Diaspora Remittance Incentive Scheme (DRIS) as well as export incentives that were being accessed by gold producers, cotton and tobacco growers, macadamia growers and horticultural producers, have been removed with effect from 21 February 2019.”. Policy plays a critical role in addressing economic challenges and putting the economy on the right trajectory. (a) Parliament’s primary law-making power must not be delegated; (d)  the Act must specify the limits of the power … and the principles and standards applicable to the statutory instrument.”. Zimbabwe’s monetary policy measures include the establishment of inter-bank foreign exchange market, putting in place local nostro foreign currency accounts settlement platform, implementing a monetary targeting framework and ensuring the stability and resilience of the financial system through a macro-prudential framework, among others. His regulations last for only six months, but nonetheless Parliament has clearly delegated its primary law-making power to the President, this is unconstitutional even if the President’s regulations are only temporary. What is the problem with the mono-currency? | Designed by Storm WD. The real impact of Zim’s shift in monetary policy emerge HARARE - As the dust swirls around Zimbabwe’s sudden shift in monetary policy, the real impact of the policy measures to the economy has started to emerge, with the stock exchange falling, exchange rates plummeting and shops shifting prices to the Zimbabwe dollar. The political stand off is a governance issue which must be addressed by genuine dialogue. The RBZ thinks inflation is being driven by the public’s expectations of future inflation based on their past experiences. For the ordinary person, the usd is a store of value. The data on inflation is soft. This article interrogates the measures announced and determine whether these battery of measures address the financial and economic problems of the country as measured against the expectations of the people. “The rate will be reviewed from time to time as dictated by prevailing market fundamentals,” governor John … Bureaux de change may have consented to the cancellation of their registration, and if they have done so freely and with full knowledge of their rights there is no problem. In our case industrial capacity utilization stands at 29%. The figure has nothing to do with the fact of de-dollarization. Yet the RBZ statement never mentioned the issue of reserves. The Governor of the Reserve Bank of Zimbabwe delivered his Monetary Policy Statement on the 20th February and, amongst other measures, announced the following: Within a commendably short time two legal instruments were gazetted to give effect to these measures: On the 22nd February the Reserve Bank issued a Directive to Authorised Dealers, RU 28/2019 [link], to implement further aspects of the Monetary Policy Statement. Source: 2019 Monetary Policy Statement: pdf | The Herald 20 FEB, 2019 Reserve Bank of Zimbabwe Governor John Mangudya presents the 2019 Monetary Policy Statement yesterday. Government is out of touch with reality. The cancellation of export incentive schemes may be illegal. The policy came on the back of nationwide euphoria, renewed hope and a cloud of expectations driven by new Economic Dispensation ushered in in November 2017. This would eliminate the system whereby goods and services are priced and charged in foreign currency or in both local and foreign currency. Yet the devil is in the details. The Governor simply mentioned that the Bank will import additional bank notes and coins to raise the portion of physical cash to 10% of total deposits. That is important because the fact that a currency is legal tender does not mean that it must be used for all purposes. More information on the construction of the MPS and the role of staff can be found in the Bulletin article: Effective monetary policy committee deliberation in New Zealand. Required fields are marked *, Zimbabwe’s energy policy still favouring coal over renewables, The Custody Rights Of Fathers Regarding Minor Children In Zimbabwe. 638. The monetary policy statement was a clear indication that all is not well in the economy and huge challenges lie ahead with regards to reviving and stabilising the economy. This figure will certainly increase public debt. Both the statutory instruments that give effect to the new monetary policy are open to challenge on the ground that they are unconstitutional by virtue of section 134(a) and (d) of the Constitution, which state: “Parliament may, in an Act of Parliament, delegate power to make statutory instruments within the scope of and for the purposes laid down in that Act, but—. There is no law in Zimbabwe which invalidates a contract that stipulates payment in a foreign currency. Finally I have to comment on the usd 1.2 Legacy debt related to airlines, grain suppliers and fuel . Zimbabwe has brought back its own currency, the Zimbabwe dollar, just over a decade after its usefulness was destroyed by hyperinflation. It is evident that the Zimbabwean economy has self-dollarized. In other words, under this Act, the President has the same law-making power as Parliament. THE long-awaited monetary policy that was presented by Reserve Bank of Zimbabwe Governor Dr John Mangudya last week was received with mixed emotions. Constitutionality of Statutory Instruments. RBZ Governor Dr Mangudya presents mid-term Monetary Policy. The airline industry has never de-dollarized from the beginning. The answer is very simple. SI 33 of 2019 was made under the Presidential Powers (Temporary Measures) Act, which gives the President even wider power to make regulations:  if situations arise that need to be dealt with urgently, the President is empowered to make regulations providing for “any matter or thing for which Parliament can make provision in an Act”. After the Constitution came into force the Act should have been repealed and replaced with a constitutionally compliant Act. If however the parties have agreed that the debt should be repaid in US dollars, then the debtor must repay it in those dollars. Veritas makes every effort to ensure reliable information, but cannot take legal responsibility for information supplied. Is the Appointment of VP Chiwenga as Zimbabwe’s Health... South Africa Introduces Wildlife Zones to Save Rhino. Public Expectation Number 1: Solving the problem of Cash Shortages: It is a broken record to remind Zimbabweans that day in day out people are sleeping in bank queues in attempt to withdraw cash. Use of RTGS Dollars for All Transactions. The Reserve Bank of Zimbabwe raised interest rates to 35% at its June monetary policy meeting with the stated intention to “curb speculative borrowing”, though inflation is also surging. The government and the Reserve Bank should remember that statutory instruments do not simply vanish when policies change:  they remain in force until they are repealed, and if they are inconsistent with the new policies they may operate to subvert them. In terms of section 46 of the Reserve Bank Act, the Governor is obliged to present a Monetary Policy Statement setting out measures to, inter alia, controlling Money Supply, Targeting Inflation for price stability, managing the exchange rate, stabilizing the financial sector, setting the bank rate and so on … One final point is that the task of assessing the legal implications of the new policy is made more difficult by the large number of exchange control instruments – regulations, orders and directives – which remain on the statute book long after the policies they implement have been abandoned. Inflation drivers in Zimbabwe are real not viscaral. All rights reserved. Prices are increasing by leaps and bounds and Zimbabwe risks re-entering the Gueness Book as the country with the highest hyperinflation. In a covert fashion, those sectors mentioned above simply index prices to the usd. A further point is that in 2009 British pounds, Euros, U.S. Similarly there is no law in Zimbabwe that requires prices to be marked up in legal tender or accounts to be drawn up in legal tender. The Governor of the Reserve Bank of Zimbabwe delivered his Monetary Policy Statement on the 20th February and, amongst other measures, announced the following: Dollar balances held in local FCA bank accounts and mobile payment platforms, as well as bond notes and coins, would no longer be regarded as equal in value to United States dollars. The truth is that the economy has self dollarized. In my first first year study in the School of Economics i once read a book entitled ” How to lie with Statistics”. Neither the Governor’s monetary policy statement nor SIs 32 or 33 of 2019, nor the Reserve Bank’s directive, alter that. Public Expectation number 5: building Reserves. Did the Governor’ s Monetary Policy Statement do that? zimbabwe’s monetary policy regime and the cash crisis Executive Summary The cash crisis in Zimbabwe is a symptom of a multifaceted economic problem that is rooted in the entire macro economy from production, investment, all the way to consumption. Your email address will not be published. This Monetary Policy Statement is issued in terms of Section 46 of the Reserve Bank of Zimbabwe Act [Chapter 22:15] which requires the Bank to issue a statement containing an evaluation of the monetary policy of the last preceding six months and a description of the policy measures to be followed by the Bank during the next Net portfolio investment dropped from usd 57.7 million in 2018 to usd 3.7 million in 2019. In a shocking revelation the RBZ disclosed that the banking sector is controlled by only 200 entities who own more than 60% of total deposits. Degree in international trade policy and trade law and a Post Graduate Diploma in international trade policy and law from Lund University, Sweden and a BSc. The usual goals of monetary policy are to achieve or maintain full employment, to achieve or maintain a high rate of economic growth, and to stabilize prices and wages.Until the early 20th century, monetary policy was thought by most experts to be of little use in influencing the economy. A Look at Zimbabwe’s Monetary Policy Statement, Angola: Suspicious Corona-virus Case Tests Negative, South Africa: Zimbabwe’s Ambassador Hamadziripi Briefs on Permits, IDs, Passports, South African Govt Rescues Ailing National Airline SAA, Africa: Youths Can be Drivers of Change, Development, New Investments to Give Africa the lead in Agri-Development, Standard Bank Plays Leading Role in Mozambique Gas Financing, Multinationals Recognising Value of Local Currency Funding in Africa, Low-cost, Simple Innovation for People Living with Asthma in South Africa, Zimbabwean Immigrants and Sex Work in Botswana, Mozambique: Displaced People Get UN Boost, Malawian Prophet Bushiri Spends Another Weekend in Jail, Resurgent Leeroy Kamusena Finds New Love in Cape Town #BoyzDzeSmoko. If the Acts are unconstitutional then they and the instruments are void, and the monetary policy remains just a policy with no legislation to back it up. The argument by the RBZ is what we call a ” fallacy of composition”. To summarise the legal issues covered in this Bill Watch: All these issues suggest that while the government and the Reserve Bank may have expended a great deal of time and thought in constructing the new monetary policy, perhaps they should have paid more attention to the policy’s legal aspects. The registration of bureaux de change cannot be cancelled merely because the Reserve Bank has changed its policy. According to the RBZ statement the banking system handled transactions in mono currency worth ZWL $ 459 billion hence this shows that the country is de-dollarizing. If this is not terrible what else is? The majority of transactions in Zimbabwe are in the form of what i can call covert re-dollarization. hyperinflation was caused by expansionary monetary policy, the exchange rate premium and inflation expectations for both the short and long-term. No further details are given. RTGS dollars “shall be” used by everyone, including Government, for pricing goods and services, recording debts, accounting and settling domestic transactions. HARARE - As the dust swirls around Zimbabwe’s sudden shift in monetary policy, the real impact of the policy measures to the economy has started to emerge, with the stock exchange falling, exchange rates plummeting and shops shifting prices to the Zimbabwe dollar. Box 1283 Harare Zimbabwe Telephone +263 242 703 000, +263 867 700 0477 Toll Free Numbers 0800 6009 - Telone landlines only 0808 6770 - Econet lines only E-mails 3. Monetary policy is set by the central bank and can boost consumer spending through lower interest rates that make borrowing cheaper on everything from credit cards to mortgages. Period. The re-introduction of the Zimbabwean dollar presents renewed scope for the Bank to conduct effective monetary policy. 6) (SI 32 of 2019), The Presidential Powers (Temporary Measures) (Amendment of Reserve Bank of Zimbabwe Act and Real Time Gross Settlement Electronic Dollars (RTGS Dollars)) Regulations, 2019 (SI 33 of 2019). perspective on Zimbabwe’s road to hyperinflation; Section 3 discusses the conduct of monetary policy in Zimbabwe (1980-2012), while Section 4 covers the literature review and Section 5 the data, model and methodology. The statutory instruments issued to give effect to the new monetary policy may not be valid. 2. Most transactions are done in Usd. Unsustainable fiscal deficits and public debt levels created the spectre of fiscal dominance in many countries, leading to high and volatile inflation and elevated risk premia on government debt. Monetary Policy compliments Fiscal Policy to maintain macro-economic stability at all material times. So if a debtor owes a creditor $20, say, the debtor can normally repay the debt by offering $20 in RTGS dollars (because they are legal tender). A single US dollar is equivalent to about 74,1 Indian rupees at the going rate. In such cases beneficiaries are regarded as having a “legitimate expectation” that their schemes will continue. Dollars, S.A. Rands and Botswana Pulas were declared to be legal tender in Zimbabwe [see section 17(2) of the Finance (No. Meanwhile bank queues are getting longer and longer. A seller is entitled to stipulate that he will accept only US dollars or any other currency for his wares, and buyers have no legal ground for complaint – if they don’t like the price they must go elsewhere. Zimbabwe’s 2019 monetary policy statement was titled “Establishment of an Inter-bank foreign exchange market to restore competitiveness” She has a MSc. SI 32 of 2019 defines the word “currency” as including the new RTGS dollars in their electronic and bond-note form. This is a move in the right direction as it will boost confidence in the banking sector. What we need in Zimbabwe is financial inclusion not financial oligarchy. Myth Number 1: The Economy is de-dollarizing. The MPC ultimately has ownership over the published forecasts. Accordingly, the Bank shall vigorously pursue its primary objective of maintaining price and financial stability, while complementing fiscal policy in line with the country’s objective of becoming an upper middle income country by 2030. Inflation is footloose. This comes at a time the local currency, the sole legal tender in the country since … SI 33 of 2019 (made under the Presidential Powers Act) adds a new section 44C to the Reserve Bank of Zimbabwe Act under which the Minister of Finance can authorise the Reserve Bank to issue electronic currency and specify its exchange rate with any other currency. Legitimacy bone of contention the entire economy of Zimbabwe Governor, Dr Mangudya. 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