Mushayavanhu, Mugano Clash Over ZiG & RBZ Gold Reserves
Economist Gift Mugano remains steadfast in his assertion that the gold held by the Reserve Bank of Zimbabwe (RBZ) is inadequate to support the newly introduced structured currency, ZiG, even in light of anticipated forex inflows from exports, diaspora remittances, and credit, among other sources.
Governor John Mushayavanhu, on Thursday, April 4th, stated that the country possesses 2.5 tonnes of gold and substantial cash reserves to anchor ZiG. However, during a subsequent address to journalists in Harare on Friday, Mushayavanhu clarified that ZiG’s foundation rests on a composite basket of reserves, including foreign currency and precious metals stored in the central bank’s vaults.
Despite this, Mushayavanhu criticized economic commentators who, via social media, expressed doubts about the sufficiency of gold reserves to bolster ZiG. Said Mushayavanhu:
ZiG shall at all times be anchored and fully backed by a composite basket of reserves comprising foreign currency, and precious metals mainly gold received by the reserve bank as part of in-kind royalties and kept in the vaults of the bank.
Foreign currency balances will be accommodated through market purchases from the 25 per cent surrender as well as the sale of some precious metals that may not have been received in the form of gold, for example, platinum.
As of today, the 5th of April 2024, the Reserve Bank’s reserve asset holdings comprise plus or minus 100 million US dollars in Nostro balances. This is the foreign exchange that we already hold.
We also have 2,522 kilogrammes of gold worth US$185 million of which one tonne of that gold is held offshore and the balance is onshore.
Those of you who were here yesterday would have seen that out of the need for transparency, and also for me to confirm to His Excellency that I have taken over what Dr [John] Mangudya left in the central bank, we opened the vaults of the central bank and you were able to see the gold that we are holding.
I saw that on social media some of you were saying, “Oh, you have 2.5 tonnes of gold”, you were converting it and coming up with a number and converting it to import cover.
And then I said to myself, “Are these people real economic analysts? Don’t they know that Zimbabwe is 80% to 85% dollarised?”
Therefore, we already have 85% of the money circulating in this country as foreign exchange, before we even factor what is going to be converted to ZiG.
Below is Mugano’s full response to Mushayavanhu:
I still insist that the US$285m is a drop in the ocean. I listened to the Governor’s response with much respect. However, I would like to argue my case as follows:
The submission by the Governor narrowly focuses on the view that the economy is dollarised. Yes, from a definition point of view, the economy is dollarised.
However, the fact of the matter is that the statistics we are using as indicators of dollarisation such as total deposits in the bank in USD vs ZWL and loans in USD/ZW (which is +96% in USD in terms of loans) are not a correct yardstick of the intensity of dollarisation because the informal sector is not banked – only 20% of the economy is banked.
In addition, credit to the private sector as a share of GDP is merely 8.8%. In essence, 96% of 8.8% of the economy is the total loans in USD which have been given out by banks. This is a small share of the total currency in circulation. Hence, using the USD/ZW loan ratio is somehow misleading.
For argument’s sake, if the economy is +96% dollarised, why was the rate running away in recent weeks? Is the chaos in the foreign exchange market caused by 4% of ZWL? The answer is a big no.
Alternatively, are we saying that the national budget which runs into tens of trillions of ZWL plus private sector own budgets in ZWL constitutes 4% of total cash in circulation? No.
I believe there is a significant share of ZWL in circulation, which may be in the region of 30% of the total currency in circulation due to the budget factor.
There is so much excessive liquidity which is being pumped into the market by the Treasury through payment of contractors and civil servants. In addition, the private sector also makes payments in ZWL (e.g., for salaries & services/goods)
The recipients of the ZWL payments dump the ZWL on the black market to preserve their earnings or secure the USD which is required at passports, fuel stations, ZIMRA, tuckshops, schools, etc. This trend will continue as long as ZiG is not accepted at passport offices, fuel stations, ZIMRA, tuckshops, schools, etc.
In addition, in his MPS which he presented today, the Governor emphasised that the RBZ has more than 3 times reserves to cover the reserve money supply which is ZW$2.6 trillion (equivalent to US$90 million).
He was obviously trying to assure the market that there were enough reserves to meet forex demand. However, his submission is narrowly focusing on money supply as the main driver of the exchange rate volatility which is wrong.
Excessive liquidity coming from the budget is the major destabilising factor of the exchange rate instability in Zimbabwe.
Again, for argument’s sake, is our Governor by any chance insinuating that the runaway exchange rate witnessed in the last few weeks is the ZW$2.6 trillion? I would like to argue that the disbursements from the ZW$58.2 trillion budget are a big factor.
Again, the question which arises is whether the US$285m is enough to guarantee demand for forex, that is, for both import and value preservation. The answer is a big no.
What I am sure of is that in the coming few days, the Governor will understand that beyond managing money supply, he must worry about excess liquidity from the Treasury. Verily, verily, he will appreciate that I am a real economic analyst.
Let me end by asserting that if the budget is in USD, my view that we need at least 6 months on import cover would be invalid.
In view of the fact that the budget is in ZWL, we need at least US$4.5 billion in reserves so that anyone who walks in the bank can change money the same way we do in the black market.
Crazy as it may look, it is the only way to kill the black market and restore confidence. Liberalising the exchange rate without allowing people & anyone who wants USD to access it from the formal banks, will not guarantee the success of ZiG. In addition, ZiG must be exclusively used at passport offices, fuel stations, ZIMRA, tuckshops, schools, etc.
It is my prayer that the Governor will have an open door policy like his predecessor @DrJPMangudya so that we continue the dialogue.
Ndaedza kutaura semunhu mukuru kuti tivake nyika yedu. Nyaya yemari chokwadi yanesa. Tave kufanirwa kuikunda hondo yekuti mari ive nesimba.
Hatingaiti mari inochinja chinja kakawanda gore risati rapera hazviendesi nyika mberi kana kukurudzira vaya vanoda kuita ma investments muno. Saka ngative nemweya wakanaka wekuonesana murugare.
Ndatoona Governor vakutotanga nekuda kubatwa nemweya we social media kuda kutinyomba haiwa hazvinzwarwo ivo ndiGovernor hofisi yavo haubvumiri izvozvo ngavasashoropodza maprofession edu asi vatambe nenyaya iri mudariro chete.
Pamwe chokwadi vanogona kunga vari right pakuti mari iri mudura rayo inokwana. Hazvina kuipa vanongotiudza murungare ndokuti nyika ivakike. Hakuna muziva zvose.
Isu mapurofesa chedu kubvonga chete anodyawo wadya kushata kana nhapitapi vachadudzira ivoooo sekuimba kwakaita Baba Shero @alickmacheso3.
Kunyangwe hedu tichifanirwa kuudzana murugare, hofisi yedu yakati sunungukei kuti titambanuke (flexibility) pakutaura kwedu kupfuura Governor wedu.
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