Real time gross settlement (RTGS) balances, bond notes and treasury bills (TBs) are part of the “local dollars” as they are used solely for local transactions, unlike the greenback, a financial expert has said.
BY TATIRA ZWINOIRA
Zimbabwe has been using a multi-currency regime since 2009, which is dominated by the dollar.
The introduction of bond notes last year, which are at par with the US dollar, has expanded the currency basket.
Financial expert Persistence Gwanyanya said in a broad sense, money in Zimbabwe includes cash, bond notes, nostro and RTGS balances.
“I would prefer to call bond notes and RTGS balances the local dollars and United States dollars cash and nostro ba lances, foreign currency,” he said.
“Local dollars can only be used for local transactions and foreign currency for foreign payments.”
Gwanyanya said another key distinction factor, which was important to highlight was that while local dollars can be printed, foreign currency cannot.
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In Zimbabwe, RTGS transfer balances became popular at the start of 2016 when they were touted as an alternative and part of the central bank’s strategy to have a cash-lite society by 2020.
However, while RTGS transfers grew, they also turned into a local currency in that money transacted on that platform rose at an average of 7,37% against declines in cash transactions of 3,54% on a month on month basis.
This was in the eight-month period starting January ending August.
Buttressing this was the fact that the money used for RTGS transfers and deposits as at the end of June was $6,99 billion compared to cash in circulation of $261 million.
Best practice dictates that there should be at least 40 or 50% real cash backing deposits, which in this case was only 3,73% and 12,31% even with the $600 million nostro stabilisation fund.
As such, RTGS balances are not backed by anything yet they accounted for 70% of transactions valued at $27,4 billion in the economy as at June 30.
One of the definitions of a local currency are its uses locally. To that effect, it is currently difficult to process RTGS money outside the country.
Another reason why RTGS balances are now a local currency is the fact that these balances in terms of hard cash in bank vaults largely consist of bond notes at a rate of 3,57 times to every dollar.
With bond notes featuring more in bank vaults, RTGS balances are essentially localised.
Further evidence that RTGS balances are a local currency is the fact that it has a premium on every dollar of 80%.
Stanbic Bank Zimbabwe chief financial officer Solomon Nyanhongo told a recent conference that RTGS balances were a local currency stemming from companies seeking loans against inadequate export generation.
“So the way it is, the local dollar is overvalued and I am sure at one point we are going to be forced to bite the bullet and devalue the amount which we have in this economy in RTGS balances,” he said.
Partner and investor in Flocash Zimbabwe, Taurai Chinyamakobvu told the same conference that it was time to accept that the country had a glorified local currency.
“I was in a meeting for a pension fund and we were trying to figure out what to do with preserving the funding,” he said. “What was clear from that conversation and other conversations we had in many places is that from where I stand, it is a myth that we use the United States dollar in Zimbabwe.
“It is important for us to accept that we have a local currency. I do not know what you call it, Zimbabwe dollar, Kwacha, Zola or whatever, but it is a myth that we have United States dollars.”
Apart from RTGS balances, the bond note has also become a bona fide local currency since its release last November under the export incentive facility.
The surrogate currency’s transition into a local currency started when foreign currency, particularly the greenback, started dropping from the market, resulting in demand for the surrogate currency.
As of June this year, of the $261 million cash in circulation, $204 million was in bond notes and coins and $57 million in foreign currency according to Steward Bank chief financial officer Alfred Chaavure.
Since its introduction, the bond note has lost at least 45% of its value as premiums for the United States dollar using the note is $1,45 to every $1.
