Last year when the RBZ introduced a US$50 per week facility that would allow ordinary individuals to access up to US$50 per week at the auction rate we were sceptical. With good reason too. The RBZ would need lots of foreign currency to meet the overwhelming demand they were likely to face. That never happened, the facility never really got popular and was only abused by a few connected people. Now the RBZ, through the governor, has just announced that they are putting an end to it all.

The Bank availed the US$50 Facility to assist members of the public to access foreign currency for small domestic purchases and payments at the official exchange rate through bureaux de change which are allowed to charge up to 10% over the cost of funds.

The Bank, has, however, noted, with concern the abuses of this Facility by some members of the public.

In this regard, the Bank is refining the US$50 Facility, with immediate effect, to limit it to the vulnerable members of the society, that is pensioners, senior citizens, people living with disability and those requiring forex for medical purposes.

Governor Mangudya during his latest Monetary Policy Statement

Predictable outcome

As we said when we heard the news we were sceptical. The RBZ then went into overdrive and soon we began to see various such as ContiCash which allowed people to do things like pay for DStv and pay their medical bills. People would pay using ZWL at the official rate and these entities would then pay the bill in USD.

There was so much demand the central bank failed to meet demand. It was a predictable outcome. If the country had enough foreign currency to meet everyone’s needs as the RBZ is always claiming, then the rate on unofficial markets wouldn’t so high and exporters wouldn’t sweat over the fact that they have to surrender some of their foreign currency to the official auction.

The fact of the matter is there is not enough foreign currency to go around. The RBZ has therefore decided to go with the line that they are not throwing in the towel but “refining” the facility. Only time will tell how well this will work out. Personally, I am not impressed. The facility has never catered to the vulnerable members of society anyway. There is no way that is going to change. Instead expect to see it being abused in a different way as people with reach exploit loopholes in the system to enrich themselves via arbitrage opportunities.

I will be blunt and technical here. The entire thing is stupid and runs counter to the laws of economics. It should never have been done and this whole refining thing is unlikely to work thanks to rife corruption. I mean the rates offered out there are over 100% the official rate. The RBZ is only allowing the exchanges to charge a market up of 10%. That means there is still profit to be a made-a lot of profit.

To solve all the problems we are seeing in the market all the RBZ has to do is to make sure that the so-called official auction is following market principles. That it’s a true floating market. No one really expects this to happen in the short term but the thing about facts is that they are stubborn and resilient. Not even the almighty Zimbabwean government can continue to defy these basic economic tenets.

Eventually, as they have done countless times before, the government will bow to these laws. Don’t expect contrition when this happens. Expect chest-beating and claims that this was our plan all along. That is how our government rolls. Deny, deny, dismiss as fake news and then announce it as their own idea. They have done this so many times we have lost count.