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RBZ frees interbank rate, dumps Letters of Credit

By Gibson Nyikadzino

IN the face of soaring inflation and exchange rate volatility, government through the Reserve Bank of Zimbabwe (RBZ) and the Ministry of Finance and Economic Development have decided to liberalise the country’s interbank rate.

To manage the situation, government has also said it will “discontinue use of Letters of Credit (LC) gradually” and encourage all importers to access forex through the interbank market.

A Letter of Credit, according to the CBZ website, is a conditional undertaking made by the bank to pay the exporter (seller) for goods exported, provided the exporter presents documents called for under the Letter of Credit and which comply with the credit terms and conditions. Trading partners who are not too familiar or comfortable to deal with each other or are in doubt of receiving the foreign currency payments for goods exported normally use this instrument.

Addressing media in Harare jointly at the central bank, RBZ Governor Dr. John Mangudya and Finance Minister Prof. Mthuli Ncube said the interbank liberalisation is to ensure a stable foreign exchange management and a floating exchange rate system.

Before the announcement, forex exchange using the interbank rate was ZWL$19 against the parallel market’s ZWL$39 against the US dollar.

“Zimbabwe has had no transparent and effective foreign exchange trading platform for a long time. Consequently, official rates have not been effectively determined, while a thriving parallel market has developed.

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“To correct this anomaly, foreign exchange will be traded freely amongst the banks and permit true market exchange rate to be determined,” said Prof. Ncube.

The minister also indicated that the measures will also include the participation and liberalisation of trading rules of the Bureaux de Change “so that they can conduct all wider range of transactions.”

Prof. Ncube also said the RBZ will provide liquidity to stabilise the exchange where necessary and the mechanism will be immediately operational. He said government currently has a cash surplus of over ZWL$3 billion.

According to the Finance Minister, the country has no enough laws to curb the parallel market.

Dr. Mangudya also emphasised that Letters of Credit will be gradually discontinued and importers with access to free funds can use them liberally. – Zimbabwe Voice

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