BY VENERANDA LANGA
THE central bank yesterday said it would introduce new currency notes and coins in the next two weeks, as it moves to restore the domestic currency which fell victim to hyperinflation and was dumped in 2009.
The new money, comprising $5 notes and $2 coins, will be introduced gradually to ease shortages of the bond note while ensuring that it does not drive up inflation, Reserve Bank of Zimbabwe governor John Mangudya said.
It will circulate alongside the bond notes and coins introduced in 2016 as a surrogate of the US dollar, which the country was then mainly using in-lieu of
its own currency.
The central bank unexpectedly reintroduced the Zimbabwe dollar on June 24, ending a decade of dollarisation.
“We thought of being conservative (in introducing low denomination notes and coins) and we will graduate with time,” Mangudya told journalists after a two-day Monetary Policy Committee (MPC) meeting in Harare.
It was the first meeting of the MPC since its appointment by Finance minister Mthuli Ncube last month.
Zimbabwe is grappling with its worst economic crisis in a decade, marked by shortages of foreign exchange, fuel and medicines, three-digit inflation and 18-hour daily power cuts.
The central bank boss also confirmed that the economy is expected to shrink by 6,5% this year, while month-to-month inflation will be between 10% and 12% by year end.
While year-on-year inflation was at 353,32% in September, government suspended in August publication of the figures when it topped 176%.
Mangudya, however, declined to give the name of the currency, only opting to say it would be nameless and would complement the already existing bond notes and coins in order to increase the cash circulation.
“We already have bond coins and notes in circulation, as well as $2 and $5 bond notes, but now we are going to have the already circulating bond coins and notes and the $2 new currency coins and $5 new currency notes,” Mangudya said.
“They are going to be used interchangeably at 1:1 rate and the new currency will not be in our bond notes (form), they will be called $2 or $5,” he said.
Asked to produce the specimens for the new $2 coins, and $5 notes, Mangudya said there were some legal processes that needed to be satisfied first before the specimens were made public.
“We shall give you the specimen later because whatever new currency you are introducing needs to be first gazetted through a statutory instrument (SI), and then after gazetting we do the necessary advertising. We cannot do that before the legal instruments are put in place. We need the legal reforms first,” he said.
Mangudya said he would increase the cash supply and revise the withdrawal limits upwards so that people do not have to pay premiums for their cash.
“Precisely, I would say that within the next two weeks, we will be having the cash — and cash does not mean increase in inflation,” he said.
Asked to explain why he was introducing small denominations of notes in an economy already hit by cash shortages and inflation, Mangudya said: “For now we will do the $2 notes, $5 notes and $2 coins so that they do not depreciate as soon as possible.”
Mangudya said the MPC had noted that the increase in reserve money by 80% during the first eight months of 2019 compared to December 2018 position had triggered instability in the exchange rate and resulted in the increase of prices of most goods and services.
He said there was need to contain money supply growth within levels that will ensure exchange rate stability and inflation reduction.
Last week, Mangudya was quizzed by Parliament’s Public Accounts Committee, led by Tendai Biti, on revelations that about 10 individuals in the country controlled the US dollar market in the country.
Yesterday, he, however, said 50% of the country’s deposits were owned by 50 corporates.
“So 50% of the $19 billion money supply is in the hands of 50 corporates and so it means we are predominantly a poor country,” he said.
“We must not allow such a thing to happen because at the end of the day, prices will affect everyone in the economy. We are not targeting individuals, we are targeting those with sufficient energy to influence the market.”
On curbing illicit financial deals and massive profiteering by EcoCash agents, Mangudya said the RBZ’s Financial Intelligence Unit had already been deployed, adding that the behaviour of bureaux de change would also be monitored.
On reports that the Chinese government had expended funds for the Robert Gabriel Mugabe International Airport expansion after he released money to Sakunda Holdings on a 1:1 rate to the US dollar, Mangudya said the issue was based on hearsay.
The RBZ governor said the total harnessed funds since he introduced the interbank exchange rate towards the end of last year was US$1,3 billion, being purchases by customers.
He said most of the money was being channelled towards purchases of fuel, adding that the equilibrium in the interbank exchange rate would be a level of 5 to 8 to the United States dollar.
Mangudya said the MPC has noted with concern the continued inflationary pressures in the economy, projected to recede in the outlook period as attested by the recent decline in monthly inflation from 39,26% in June 2019 to 18,07% in August and further to 17,72% in September 2019.
— Additional reporting by Reuters