Reserve Bank of Zimbabwe (RBZ) Governor John Mushayavanhu has said that Zimbabwe’s foreign currency reserves have risen to over US$500 million, roughly three times the total amount of Zimbabwe Gold (ZiG) in circulation.
Since the September devaluation, the ZiG has gained ground against the US dollar, appreciating from US$1:ZiG27,4 at the end of October to US$1:ZiG25,6 by Friday.
In an interview with The Sunday Mail, Mushayavanhu attributed the strengthening of the ZiG to a range of measures, including the central bank’s decision to raise its benchmark interest rate from 20% to 35% in September.
This was done to curb inflationary pressures and tighten liquidity in the market.
Furthermore, the RBZ introduced changes to the statutory reserve requirements, setting them at 30% for both demand and call deposits in local and foreign currencies. For savings and time deposits, the reserve requirement was set at 15%. Said Mushayavanhu:
The combined effect of these measures has significantly reduced ZiG liquidity in the market.
The exchange rate has also strengthened, benefitting from increased foreign currency receipts.
Zimbabwe’s foreign currency receipts increased by 18% during the nine months leading up to September, compared to the same period the previous year. Added Mushayavanhu:
The ZiG:US dollar exchange rate has, therefore, been appreciating under the willing-buyer, willing-seller arrangement, in line with market fundamentals, reflecting the supply and demand dynamics of foreign currency on the interbank market.
The tight ZiG liquidity conditions amid a tight monetary policy stance in the market have seen increased willingness by economic agents to liquidate their foreign currency positions, thereby creating demand for ZiG.
These conditions have largely contributed to the appreciation of the currency.
Currently, the total reserve money in local currency as of November 6, 2024 is about ZiG3,4 billion, which is about US$129 million, against foreign currency reserves of US$509 million.
The Reserve Bank’s total foreign currency reserve holdings of more than US$500 million as at November 1, 2024 are also more than the total bank deposits in the domestic currency of about ZiG12 billion — giving an implied exchange rate of around US$1:ZiG24.
The Reserve Bank has, therefore, since April 5, 2024, consistently held more than sufficient reserves to back the ZiG currency to ensure its stability.
Mushayavanhu said the Reserve Bank will continue to intervene in the foreign exchange market by utilising 50% of the 25% export surrender requirements.
This intervention aims to support smooth market operations, meet legitimate foreign payment demands, and strengthen reserve holdings to maintain the stability of the Zimbabwe Gold (ZiG). Said Mushayavanhu:
The full backing of the local currency reserve money ensures that at each point the Reserve Bank has adequate foreign currency reserves to intervene in the market and ensure the stability of the local currency.
Currently, the Reserve Bank reserves have topped US$500 million, which implies more than three times the cover of reserve money.
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