THERE has been a general lack of Zimbabwean dollar stocks in the market recently.

Zimbabwe’s financial and capital markets have been going through interesting twists and shifts since the Reserve Bank of Zimbabwe (RBZ) scaled up its corrective actions, which have been supported by the Ministry of Finance and Economic Development.

The streets are dry.

Zimbabwe dollar stocks have vanished.

In other words, money changers — the guys who roam the streets changing Zimbabwe dollars for the greenback — have no money to change, or “float”, in street lingo.

It is the latest twist of protracted cat and mouse games between authorities and money changers that gained traction exactly 12 months ago.

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Authorities have frozen bank accounts, arrested company directors and named and shamed some. In May, they moved a gear up and froze bank loans.

The government has been forced to review contracts awarded to its suppliers to fish out contractors accused of pricing products at parallel market rates.

Along with this drastic action, they have simultaneously frozen most payments for such and similar contracts.

As soon as government contract reviews were ordered, the excess liquidity on the market started drying up and currency stability slowly crept in.

This trend tended to support long-held suspicion that excess liquidity availed to government contractors was fuelling the parallel market rage, as these contractors sought to convert their Zimbabwean dollars into hard currency.

A trend had continued whereby as soon as government paid its contractors, parallel market rates spiralled.

Currency demand on both the official and parallel markets remained a cause for concern. It seemed to have no limits, and the resultant depreciation of the domestic currency has serious knock on effects on inflation. Government contractors were also accused of double dipping.

It was alleged contractors would price their products and services at black market rates and, then seek to access foreign currency at the official foreign currency auction run by the Reserve Bank of Zimbabwe, where rates are cheaper.

This was sufficient to undermine the currency, and held back economic stability.

The whole economy had become a haven for speculators, with their financial gymnastics that were focused on profiteering.

The problems was, there was very little productivity and innovation in the economy.

After the introduction of gold coins, government demanded that any service offers, as well as that offered by its agencies would be offered only in Zimbabwean dollars, not in foreign currency.

This followed a previous policy shift allowing half of import duty to be settled in local currency. The idea was to encourage the market to transact in the local currency, and defend it by increasing demand for Zimbabwean dollars.

It remains to be seen if all government departments will adhere to this local currency policy. But it seems a majority of them had somehow dollarised their services.

When authorities defend currency measures, it must be noted that success can come in the short term. But as speculators make out what would be happening and figure out loopholes, such gains are quickly reversed.

This is a real possibility with elections less than 12 months away. The authorities need to devise long term, robust measures to support the currency.

These measures include improving export earnings, while implementing value-added import substitution industrialisation strategies to reduce demand for foreign currency.

Such a strategy also helps the economy increase its foreign currency earnings.

While effective, most measures so far appear to be reactionary.

The right way to defend the economy would be to take proactive measures.

As they say, one stitch in time saves nine!

The Financial Intelligence Units’ capabilities must be improved and enhanced to avoid playing catch-up to black market kingpins, who seem to be dictating rates.

Banking industry regulations must be reviewed to reward those who save, in the form of real interest rates that take into consideration inflation developments.

Banks are currently making significant transaction fee earnings.

They have ignoring the need to offer positive interest rates, which attract deposits.

This is an area that the RBZ must keep an eye on and devise ways and strategies that allow banks to build solid deposit bases through offering traditional rewards to depositors in form of interest rates.

For this to happen there must be depositor confidence in the local currency.

They must be assured that currency shifts and changes are a thing of the past.

Such confidence will go a long way in assisting the stability of the Zimbabwe dollar.

When the local currency was in a free fall at the end of the first quarter, authorities were forced into action.

There was general price instability and market movement towards full rejection and abandonment of the Zimbabwean dollar. Action was required to support a currency under siege and threatened into extinction.

By forcing government departments and related entities to only accept Zimbabwean dollars for services and products offered, the government threw a lifeline to the domestic currency, which was headed for an inglorious and painful end.

This measure was long overdue as it is normal for any government to demand to be paid in its own currency.

The various steps taken including stringent lending requirements and punitive overnight lending accommodation rates have helped stabilise the currency for now.

It is important to note that the government is normally the biggest customer and biggest employer in any economy. In smaller economies the government may control up to 75% of the buy and supplier markets.

This shows that the government has a say, especially where suppliers quote contracts using parallel market rates and government departments somehow  allow such practices to continue whilst destabilising general market stability. Government procurement systems and mechanisms need to be refined and strengthened against such pilferage, which is clearly undesirable as it results in financial losses and economic ruin for the whole nation.

  • Muponda is an economist and entrepreneur. He holds a B.Comm (Finance) and an MBA. — gilbertmuponda@gmail.com.