Thread by @Wamagaisa

Monetary Policy - Thread

1. Zimbabwe has a “new” currency called RTGS Dollar. It’s effectively the Zim Dollar by another name, of you want to be cautious, it’s a precursor to a local physical currency which will be needed in an economy that has an appetite for physical cash.

2. Government commands that this RTGS Dollar should be used for all transactions. Curiously, even in the face of this command, government maintains the fiction of multi-currency still exists.

3. RTGS Dollar is a virtual currency (electronic) whose value will be determined by market forces. Essentially, the government has abandoned the fiction of 1:1 rate of the bond note to USD

4. The bond note will trade at the market-based value of the RTGS Dollar, although the government doesn’t say so in express terms.

5. Although the government says it will now add the RTGS Dollar to the basket of multi-currencies, in reality, the RTGS Dollar has always existed and been used, albeit at the fixed rate of 1:1 to the USD

6. What has changed therefore, is that the command rate for the RTGS Dollar has now been replaced by the market rate. It’s an admission that the 1:1 is untenable.

7. If we consider that it was already trading on market rates on the black market, the government has simply followed the market (reminder of 2008/9). This was bound to happen as the old fiction could not be maintained.

8. The big question is whether the RTGS Dollar will hold its black market value now that it’s official. On that the market, as always, has the answer.

9. Interestingly, the government maintains the forex allocation scheme, itself a haven for rent-seekers unless it is open and transparent, something that has been lacking in the past. The new forex allocation committee will have to be transparent and robust in its role.

10. Since the government is probably the biggest consumer (and allocator) of forex, its appetite and conduct will have the biggest impact on the rates of exchange between the RTGS Dollar and the USD.

11. The forex retention scheme has some curious points. For example, a tobacco farmer is allowed to retain 30% of export proceeds in USD, while a tobacco merchant retains 80%. In other words, the policy rewards the middleman over the grower. It privileges capital over labour.

12. This is curious given the role of producers. Some might say the remainder for the farmer will be at the floating rate so there’s no problem. But if that logic works why not treat growers and merchants similarly? No doubt growers will not be happy & middlemen will be smiling.