To understand the logic behind the MoF’s measures, one needs to appreciate the mechanics of the foreign currency auction system in-terms of its funding. Here we make an attempt to explain. 1) Exporter A produces and exports goods worthy USD1m. On processing their CD1s, their Bank takes 25% or USD 250k in line with the 25% foreign currency retentions for onward transmission to the RBZ

Zim v Kenya Currency Case Study (a Thread)

1) In this thread we explore the root causes of Zim’s perennial foreign currency challenges. To make our case we use the example of Kenya. A few basic facts about Kenya: 2) Kenya is a country with an estimated population of some 55m people.The biggest foreign currency earner in Kenya is diaspora remittances which accounted for 52% of total forex earnings in 2021 at USD 3,53b. Other forex earners are tea &coffee exports, tourism and horticulture

Why an overvalued Zimdollar is a nightmare (A Thread)

1) In economics there is a concept called allocative efficiency. Allocative efficiency is achieved when the price of a good/service is exactly equal to the marginal cost of producing the same otherwise denoted as P=MC 2) Applying the same concept to Zim’s foreign currency situation, USD$1 worthy of foreign currency earned (MC) should be parceled to a willing buyer at a price (P) that is equivalent to USD$1 in full observance of the allocative efficiency concept

How to detect a Ponzi Scheme(Thread)

1) Named after Charles Ponzi who promised “investors” a 40% return on their investments in 90days the Ponzi is the most common type of investment fraud. It operates on the simple principle of “robbing Peter to Pay Paul” 2) A ponzi scheme can take any shape or form depending on the creative imagination of its promoters. In most cases early adopters of the ponzi scheme make ridiculous profits. This is key to generate trust amongst would be “investors”

BREAKING: Monetary Policy Highlights

1) Uniform export retentions at a level of 70% across all sectors with immediate effect. In addition the mandatory liqudation period has been extended to 60 days from the previous 30 days 2) Mandatory Forex liquidation
20% of all domestically generated foreign currency sales to be mandatorily liquidated at the point of deposit into domestic FCAs. Policy doesnt apply to free funds (NGOs, individuals, tobacco farmers, fuel companies etc)

SI 185 of 2020 compels providers of goods and services to display dual prices in ZWL and USD using the official exchange rate! Here are a few implications of this directive:

1) Because the “official” exchange rate lgs behind the actual exchange rate used to price goods and services, we are likely to see a spike in USD prices for goods and services due to the need to comply with this directive

#LightMoment
CENTRAL BANK OF BUS TERMINI(CBBT)

1) Back in the day(2009 to be precise), Zim had a biting small change problem. The market had agreed to peg the kombi price at $0,50c per trip. However the market had no supply of USD small change in lower coins denominations.... 2) Typical of Zimbabweans they had “to find a way”. Vendors weighed in, selling buscuits packets for $1 for two to kombi crews. In the unfortunate event of the crew failing to find change, one would be “blessed” with a packet of buscuits in place of $0,50c. Perfectly acceptable!

IMPLICATIONS OF USD CIVIL SERVICE SALARY

1) For starters this is a very good move. In the face of a spiking exchange rate and run away inflation, a USD salary is always welcome. Its good for value, its good for sanity in the economy. A few implications of this move..... 2) To underwrite the monthly wage bill of cUSD$50m for Civil Servants and Pensioners, the Gvt will need to create a USD REVENUE TAX base. Going forward we are likely to see retailers forced to adopt USD fiscalised registers for Gvt to earn VAT is USDollars.

Quick Fix Economic measures for #COVIDー19

1) Suspend Income Tax

To make sure individuals have more dollars in their pockets to weather the storm, Gvt ought to provide at least a 3month tax holiday to all workers on income tax. This will boost consumption and economic activity 2) Suspend Corporate Tax

Our Gvt has no capacity to bail out strategic corporates. However a suspension of corporate tax will ease the burden of declining sales due to low economic activity as a result of the pandemic. Gvt can still collect taxes through VAT on sales.

Through a General Notice in the Government Gazette, the Minister of Finance suspends fungibility of dually listed counters: Old Mutual, PPC and Seedco International. The move implies that investors can no longer transfer shares of these counters across stock exchanges. HISTORY CHECK:

28 May 2008 we suspended fungibility of shares. 7 months later we dollarised! We are going full circle.

allafrica.com/stories/200805…

RBZ MPC Statement (Comment)

1) Having the interbank market to use a Reuters based platform is welcome.This will allow price discovery and transparency.However there has to be a mechanism for the RBZ to allow willing sellers of forex to indicate their parcels through the same 2) Reserve Money growth of 80% is too big for an economy that is growing at under 5% p.a. On the other end the projected overall reserve money growth of under 50% is still too high for an economy that is expected to weaken by 6,5%. Excess liquidity in the market

MONETARY POLICY Highlights

1) Overnight accomodation window adjusted from 50% to 70%. Move mearnt to discourage borrowing which destabilises the exchange rate and fuels inflation. Interests rates likely to spike for the second time 2) Economic growth expected to shrink by 3.2% for full year 2019. This comes on the back of cyclone idai, drought plus climate change.

Implications of the new measures (A Thread)

a) This will mop excess liquidity to the tune of $1.2b and in the process reduce pressure on the exchange rate since the payments will be done at 1:1 from the RBZ. Key issue will be availability of the forex to meet this quantum b) The move is mearnt to divert pressure that was coming on the exchange rate from borrowing customers. By increasing the cost of borrowing, the RBZ has limited credit creation and hence money supply. This is essential for exchange rate stability.

An ideal RTGS$/USD Exchange Rate(A thread)

1) So many attempts have been made to predict the ideal exchange rate between the USD and the RTGS$. This process can never be a thumbsuck exercise. It should be informed by official statistics on our monetary aggregates 2) In this thread we use two variables:

a) The RTGS Market Position or the total aggregate of all funds held on all banks' RTGS Positions. This is money that is available in immediate circulation,
b) Total Forex Holdings- Cash+ Nostro balances in foreign Banks

Why the InterBank Market is a Missed Opportunity (Thread)

1) In an unconventional fashion we will use a scripture reference from the word of God in Mark 3 v 27- "No Man can enter into a strong man's house and spoil his goods except he will first bind the strong man......." 2) The STRONG MAN in the context of Zimbabwe's Currency crisis is the Forex Alternative Market. When the IB Market was introduced on 22 Feb 2019, the RTGS/USD rate was at $3.85. Whatever interventions we would make were supposed to match(BIND) the Alt Market (STRONGMAN).....

Zim Market Distortions: The Logic

1) The economy faces a fresh wave of price increases on the back of a increasing RTGS/USD Premiums on both the IB and Alt Markets. There is an observable trend in the chaos amongst retailers....(Contd)

@BrezhMalaba @Mathuthu 2) It is a matter of fact that the RTGS$ has devalued. However the extent of the devaluation is amplified when retailers set their prices. In an effort to force USD sales from clients, they overcharge RTGS$ prices to the detriment of the customer.

Quick Thoughts on #MPS2019

We are glad to say today's MPS announcement is consistent with 38% of the audience that casted votes under our last poll. Despite the majority preferring to adopt the Rand, the Rand was never going to be an option considering....(contd) ... the absence of the necessary prerequisites like 1) Acceptable Inflation target 2) Acceptable Debt/GDP ratio 3) Adherence to prudent fiscal measures 4) Own currency. So if the Governor was to go by the people's wishes he had to go by the Second best option- Floating the RTGS!

We will using the hashtag #MPS2019 for updates on the RBZ Monetary Policy Statement. RBZ Governor arrives

#MPS2019

THREAD ON FUEL CRISIS

1) Fuel is a baseline expense and any increase on fuel pump prices unlocks a spat of prices for other commodities. Chances are in the coming wks we will witness massive prices increases, panick buying, hoarding and the usual things associated with inflation 2) The best way in our view was to peg fuel in forex and hence allowing businesses to follow suit and charge thier commodities in forex. This wld have systematically eliminated the bond notes/RTGS as the USD is more attractive from a stability point of view.

ZimDollar Scenario on replay

1) It would help for people to relate the actual chronology of the permanent fall of the ZimDollar in late 2008, early 2009. With the $100 Trillion Note coming in, Retailers started to benchmark prices at rates higher than the going USD/ZWD rate 2) The same is being witnessed in today's environment as retailers seem to be pegging Bond ¢ RTGS prices higher than the generally agreed Alternative Market rate. This is wisely designed to force people to Buy in USD. The brave retailers are pegging prices exclusively in USD.

FUEL CRISIS

1) Between Jan and June 18 Zim has imported above $885m of Diesel and Petrol. This accounts for 57% of the Total earnings from out Top 3 Exports(Gold, Tobacco,Nickel). Because we sell at 1:1 this has led us to avail the cheapest fuel in the COMESA area! 2) On its part the RBZ needs to avail more information to the public on the weekly forex allocations towards fuel procurement. It is in the best interests of the public to know how much has been allocated, and to who!