Wednesday, November 5, 2008

Central bank of Zimbabwe dispels fears of dollarisation

The Reserve Bank of Zimbabwe (RBZ) has unveiled a foreign currency-denominated strategic commodities imports bond (SCIB), while also opening up the scarcity-ridden domestic market to trading in foreign currency.

The latest measures, which sparked fears the country was slowly drifting towards abandoning its beleaguered currency as the economy remains on a downward spiral, was largely seen as dollarisation - allowing the foreign currency to become legal tender - of the economy.

But RBZ governor Gideon Gono, who announced the measures on Wednesday, September 10, 2008, said the economy had not been dollarised, saying the trading in foreign currency was only limited to “registered, licenced and designated outlets.”

“From an empirical and strict theoretical perspective of the term dollarisation, a country is said to have dollarised its economy when universally, all goods and services in that country are payable in another country's legal tender, or instance the United States Dollar,” Gono said.

But critics said the latest measures, which will see 1000 shops and 200 warehouses being licenced to trade goods in foreign currency, was largely seen as an acknowledgement of the depth to which confidence in the troubled Zimbabwe dollar had reached.

The Confederation of Zimbabwe Industries (CZI) recently said doing business with the Zimbabwe dollar had become difficult to a point where the domestic currency was becoming “unusable.”

Traders are increasingly rejecting Zimbabwe's fast depreciating currency as they battle a severe economic crisis. Those still accepting the Zimbabwe dollar are quickly changing it into foreign currency on the parallel market to preserve value.

SCIB money will be used to import fuel, food, fertilisers and mining equipment, among other things, and subscribers to the bond will earn 50% interest on their investments.

The central bank, which is battling to pay gold mining firms their foreign currency earnings, said it would guarantee full repayment of amounts invested in the bonds with shareholding in selected listed and unlisted companies, certificates of authority or entitlement to but tobacco or cotton and exporting the commodities to recoup foreign currency invested, and equity conversion in joint venture projects in the area of mining.

The shops licenced to sell goods in foreign currency will however not be permited to sell selected commodities like mealie-meal, sugar, salt, cooking oil, medicines, bread and milk in foreign currency. These products would be sold in Zimbabwe dollars to cushion the vulnerable members of society, Gono said.

Fuel stations and oil companies will now also be licenced to sell their products in foreign currency.

Only parafiin will continue to be traded in Zimbabwe dollars, as well as government fuel procured by the National Oil Company of Zimbabwe. This fuel has largely been distributed to resettled farmers who have diverted it to the black market.