Zimbabwe update - Unpacking the Monetary Policy Statement

​​​Our clients have found the currency constraints in Zimbabwe to be the most significant barrier to investing in the country in recent years. When the Reserve Bank of Zimbabwe (RBZ) governor announced his monetary policy statement on 20 February 2019 we curiously waited to see how the RBZ plans to deal with the currency challenges. In the Statement, the Governor effectively denominated the current RTGS balances, as well as bond notes and coins into a currency known as 'RTGS dollars'. This put to an end the infamous 1:1 peg against the United States Dollar (USD). In terms of unpacking what this means - here are a few immediate thoughts:

  • Effective 25 February 2019, the value of clients' current RTGS balances and bond notes and coins will now be determined at an inter-bank foreign exchange market as opposed to the 1:1 rate. Banks and bureaux de change will trade foreign currency on a willing buyer willing seller basis and daily exchange rates, which will be displayed publicly, will be determined from these trades, thereby abolishing the black market for foreign exchange.
  • In terms of understanding whether Zimbabwe has a new currency, the RBZ is reluctant to define the RTGS dollars as a currency. We understand that the government will soon issue a legal instrument that will include RTGS dollars within the multi-currency basket. The instrument will formalise RTGS into a negotiable instrument which, many would argue, will formalise it as currency. However without more detail on the legal instrument this is difficult to confirm.
  • In terms of understanding the starting exchange rate of this 'new currency', the Governor is of the view that the rate will be between 3-4 RTGS dollars/ bond notes to the USD on 25 February 2019. However, the inter-bank trade should determine the exchange rate. The RBZ believes that the RTGS dollar will trade stronger on the formal market than it did on the black market and the RBZ has arranged lines of foreign currency credit to support the purchasing power of RTGS balances. This will unravel over time once we understand better the supply and demand forces that are currently at play.
  • In terms of understanding what will happen to prices, the RBZ says all pricing for domestic transactions will now be in the local RTGS dollars, to end the multiple pricing system and the charging of domestic goods and services in foreign currency. This is a welcome announcement as retailers were charging for goods and services using a multi- tier pricing system which caused price distortions in the market.
  • In addition to RTGS dollar accounts clients can still hold their Nostro USD/ EUR accounts with the banks.
  • For those clients in the mining sector, the export retention thresholds for gold producers and other minerals has remained at 55% and 50% respectively. As a result of the foreign currency shortages, Zimbabwean mines do not earn 100% per cent of their foreign currency earnings. The RBZ allocates on average 55% of the foreign currency earnings to miners and then retains the rest. It was hoped that through this Statement the RBZ would increase the retention percentage for mining companies. Click here to see the proposed retention thresholds.

The hope is that the inter-bank foreign exchange system will bring greater predictability on the functioning of the economy and allow investors to plan with more reliable information. This should make the Zimbabwean economy more competitive. To access the full Monetary policy statement click here.

Zimbabwe map

A brief timeline of Zimbabwe's currency systems:

February 2009

- The British Pound, the Euro, the US Dollar, South African Rand and the Botswana Pula prescribed as legal tender:

2015 -

Former Zimbabwe dollars ( both bank notes and coins) demonetised

2016 -

Bond notes and coins issued by the RBZ

Late 2018 -

Separation of bank accounts into NOSTRO FCA and RTGS FCAs

20 February 2019 -

Inter-bank exchange system announced.