Analysts agree that the continuous importation of hard cash into the economy will not improve the prevailing cash shortages in the country, but further fuel the parallel market.
This comes as Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya recently told State media that the central bank had doubled cash imports to $100 million per month, as it tries to ameliorate the prevailing cash shortages.
However, financial experts and economic analysts said the importation of more cash would fuel the parallel market, making the situation worse.
“The current importation is not really having an impact to the ordinary man on the street for his day-to-day activities, and will never be a solution to the cash crisis. It is actually fuelling the parallel market,” economic analyst, Reginald Shoko said.
Shoko said the central bank and Treasury should bite the bullet and introduce a local currency, while doing away with the bond notes and continue with the multi-currency basket.
“The central bank should utilise the little foreign exchange resources they have to help export-driven industries to retool and be competitive. That would help reduce the gap between our importation needs and exports to a positive range,” he said.
According to Mangudya, since the beginning of the year the country has imported about $600 million cash.
Last year, monetary authorities were importing between $40 million and $50 million every month before doubling the figure to $100 million per month.
However, Mangudya appears to be contradicting himself with regards the foreign currency issue.
A fortnight ago, he was quoted in the State media saying the central bank had temporally frozen disbursing United States dollars to banks for onward withdrawal by individual customers.
He claimed then that the action was taken to curb illicit financial activities, where unscrupulous people were mopping the money and reselling it on the black market.
He went on to add that the central bank was now focusing on using the hard currency to support the productive sector to increase production, help boost exports and foreign currency earnings.
Financial expert, Persistence Gwanyanya said Mangudya was in a fix and the only way out was for the country to de-dollarise.
“The challenge is that the governor is in a fix. The understanding when we introduced the surrogate currency was that it was going to be at par with the United States dollar, which is now proving to be unattainable,” he said.
“I think it’s time for the central government to take a bold decision to actually embrace de-dollarisation. The challenge is that when we have these distortions, the parallel market and the formal market competing with each other, they will worsen the situation.”
Gwanyanya said formalising de-dollarisation could be done by abandoning the exchange rate peg of the bond note to the United States dollar.
He added that it was going to be better over time if the country could embrace and formalise de-dollarisation.
Only recently, local financial markets firm IH Securities reported that “higher demand for forex translated across to the parallel exchange market as pressure mounted on premiums which have surged with no visible catalyst to suggest an improvement in the short term”.
As uncertainty around elections continues to grow, the parallel market premiums are racing to the 90% levels seen in the days before the military takeover last November.
Currently, the greenback now attracts between a 70% and 80% premium when purchasing the money through EcoCash or bank transfers.
Such premiums have become so lucrative that even non-cash dealers with access to cash are now rushing to get into this business.
“We have rent seekers. We are demanding the US dollar as an investment, as a commodity itself that we are trading, it only speaks to a country that has high tendencies for rent seeking, quick buck, which is not good. This is where people are getting money because there is high level of unemployment; they are trading money and using it as an investment which is not good. How can you trade money for money?” Gwanyanya said.
“The other thing that you must understand is that when the RBZ is doubling the importation of foreign currency, it’s an extra cost to the economy because you don’t import money freely.
“You actually pay for the importation of money. I think the rate is between 0,5% and 1% importation cost. So if they are importing $100 million, what is 5% or 6% of $100 million? So you are looking at something like $6 million per month,” he said.
Gwanyanya said $6 million per month would translate to about $72 million per annum, which is a significant amount given that it is in foreign currency.
“It’s a significant amount that can be used to support the industry,” he said.
“If the understanding was cash was immediately used to fuel the parallel market, so why import more cash and not keep it in the nostro accounts, so that it’s left there to take care of foreign payments?”
Analysts say Zimbabwe is currently suffering from market distortions, whereby the parallel market was now the primary market and the actual market was now like the alternative market.
This is true in that you get more value for money from the parallel market than from the formal one.