Reserve Bank of Zimbabwe

Roles and Functions of the RBZ

The RBZ operates in accordance to the dictates of the national constitution. By extension, it is only answerable to the law. It operates under the Reserve Bank Act which mandates it to regulate and or create monetary policies, protect the currency in the interest of balanced and sustainable economic growth as well as regulating the circulation of money. This Act is also remodelled in accordance with the Reserve Bank Act of 1964 which had the same dictates.^[1] The Act also stipulates that the RBZ is to be headed by a governor, who is usually appointed by the president on a five year term which is open to an extension.^[1]

The governor has the responsibility of governing the day to day operations of the bank as well as issuing monetary statements to keep the nation abreast in as far as the income of the state is concerned as well as its expenditures. The governor is assisted by two deputies and presently they are Dr. Charity Dhliwayo who was elected as an acting governor after the tenure of Dr. Gideon Gono's second term in 2013 and Dr. Kufukile Mlambo. The Act also obliges the bank to have a Board of Directors who usually represent the key sectors of the economy.^[1]

The main duty of the RBZ is to present monetary policies with primary objectives that address management of inflation or unemployment, and maintenance of currency exchange rates.

Events

Challenges, 2003 to 2013

The failures of the RBZ are seen to have worse under the stewardship of Gideon Gono who was appointed as the central bank's governor from 2003 to 2013. During his tenure, the country's inflation skyrocketed to unprecedented levels. This meant the destruction of the local currency, the Zimbabwean Dollar. Gono's predecessor, Dr. Leonard Tsumba whose term expired on 30 June 2003 has been distanced from this RBZ predicament, though the Zimbabwean economic crisis dated back to Tsumba's term.

During Gono's tenure, liquid crunch, which affecting most banks, became a wide phenomenon. People were obliged to withdraw an amount which was equivalent to US$5 which was inadequate. However, clean uncirculated notes were readily accessible and available at the parallel market, (the black market), blamed on what Gono labelled - money launderers.

The central bank was also implicated in devoting itself more in what was referred to as its non-core business such as giving loans to farmers as well as purchasing farming equipment to be distributed to newly resettled farmers.^[2] The central government was thus accused of spearheading ZANU PF campaigns.

Hyper-inflation

Zimbabwe would see a world record inflation rate of 231 million percent (official figure as of July 2008) to the extent that the 2008 budget that was presented was for a staggering 66,500,000,000,000,000,000 Zimbabwean dollars (US$3 billion). The budget was presented in both local and US$. As Reserve bank Governor, Gono would remove zeros from the local currency three times during his tenure in a bid to curb the ever growing inflation, to no avail. This saw the introduction of new money denominations, some of which had expiry dates. On 29 Jan 2009, the acting Minister of Finance, Patrick Chinamasa scrapped the local currency in favour of a multiple currency economy. Currencies adopted at the time would be the American dollar (US$), British pound (£), South African Rand (ZAR) and the Botswana Pula (BWP).

Zimbabwe then went into hyperinflation as its year on year inflation rate as of May 2020 was on 785.55% (Zimbabwe Inflation Rates) which made it the second in world rankings of countries experiencing hyperinflation.

Bond Coins

In December 2014, RBZ would introduce a currency of coins backed by a bond to ease transaction change problems. Since the introduction of the multi-currencies in 2009, Zimbabweans were forced to take small items like sweet, cigarettes, ball-point pens, and credit notes as change because of the shortage of US dollar and South African rand coins in the country. The bond coins were denominated in 1 cent, 5 cents, 10 cents and 25 cents. The coins were brought into circulation through the local banks. The coins were minted in South Africa. At the time of introduction, the coins were equivalent to the value of US cents.^[3]

Foreign Currency Auction

The Reserve Bank of Zimbabwe (RBZ) replaced the interbank market with weekly foreign exchange auctions to determine the Zimbabwe dollar exchange rate with those in industry and commerce cautiously optimistic that the platform will enhance transparency and efficient distribution of foreign exchange.

The Tuesday auctions are to sell the foreign currency retained by exporters which must either be used or sold within 30 days at the discretion of the exporter or be subject to compulsory sale after 30 days. RBZ governor Dr John Mangudya said the auction system will operate on the Reuters Forex Trading platform, a real-time electronic trading system. The weekly auctions are designed to improve transparency and efficiency in trading of forex in Zimbabwe.^[4]

Zimbabwe conducted its first foreign currency auction in years to boost transparency and efficiency in the forex market on 23 June 2020. The Reserve Bank of Zimbabwe (RBZ) had announced that it will discard the 1:25 fixed interbank exchange rate system, which had been in place since February 2020.

The central bank said that the auction system, to be held every Tuesday, was designed to give fair value of the local currency in relation to the U.S. dollar. At the auction system, the Zimbabwe dollar debuted at 57 against 1 U.S. dollar. The new official exchange rate, however, remains below the parallel market rate which is running at between 80 and 95 per U.S. dollar depending on the method of payment.

Results of the auction conducted by the RBZ showed that the highest rate to the greenback on offer was 100 Zimbabwe dollars while the lowest was 25.5 Zimbabwe dollars. Those who want to buy hard currency through the auction system would be expected to present one bid per auction ranging from 50,000 U.S. dollars to 500,000 U.S. dollars.^[5]

Forex Auction - First Day Results

Farm Mechanisation

In July 2020, Fiscorp, the subsidiary (former) of the Reserve Bank of Zimbabwe, which handled the Farm Mechanisation Programme between 2007 and 2008, challenged former legislator, Mr Kudakwashe Bhasikiti and former Cabinet minister Mr Saviour Kasukuwere, to prove that they repaid the loans through which they received equipment under the scheme. This came as former RBZ Governor, Dr Gideon Gono, attempted to set the record straight to say the programme was not corrupt. He was responding to claims by Dr Alex Magaisa, and said that the programme, which was carried out during a difficult period, started as a loan and was later changed to a grant after the Government of National Unity had approved the switch. Former Fiscorp chief executive Mr Mathews Kunaka said no beneficiary was invoiced to repay the equipment and challenged Mr Kasukuwere and Mr Bhasikiti to provide details showing their repayments. He said Fiscorp never issued invoices and beneficiaries never knew the amount they owed, but only signed for delivery of the equipment.

It emerged that Mr Kasukuwere received more than just two tractors that he claimed to have paid for, but an assortment of farm implements. On his Twitter handle, Mr Kasukuwere said: “I think the RBZ should invoice and collect the money. These are public funds and no one should put up useless defence for looting. I paid for the two tractors that I got and I am happy to receive an invoice from the RBZ if I owe them anything.” Mr Bhasikiti, on his Twitter handle said; “Those who are saying farm mechanisation was for free are telling blatant lies. I paid $10 billion for mine, which was worked as the United States dollar equivalent then.” ^[6]

List of Reserve Bank Governors

• 1980 - 1983 Dr. Desmond Krogh
• 1983 - 1993 Dr. Kombo Moyana
• 1993 - 2003 Dr. Leonard Tsumba
• 2003 - 2013 Dr. Gideon Gono
• 2013–present Dr. John Mangudya

References