'Crackdown on money changers futile'

HARARE - The crackdown on black market currency trading to curb a parallel market blamed for the spike in prices is not enough to address the problem, economists said yesterday.

This comes as there has been a heavy security presence around commercial areas typically associated with black market trading.

Traders were largely absent from posts they usually occupy where currency deals are conducted since Monday, when new laws that prescribe a maximum 10-year custodial sentence for illegal foreign currency traders came into force.

However, there are fears that most of the illegal foreign currency traders have now started operating on their mobile phones, and through which they arrange to meet their customers at secret locations.

President Emmerson Mnangagwa’s temporary emergency policies are aimed at controlling the black market and harshly charging illegal traders with money laundering and destroying the economy.

The central bank holds the official exchange rate at 1:1 US dollar to the bond note, but the rate is largely only accessible to importers of essential goods like wheat and fuel, creating major demand for black market dollars.

Economists said the measures enacted to stop the currency’s free fall including legal penalties for black market dollar trading would fail unless government first rights the fundamental wrongs.

Economist Trust Chikohore told the Daily News that the crisis will go on.

“The real issue is continuing with the bond note when clearly the market is dollarising. Sending people to jail for changing money will not solve the problem,” Chikohore said.

“As long as forex is scarce and the official rate is fixed, the problem will continue and may even get worse. We must demonetise the bond note and use forex across the board for now in order to stabilise the economy.”

Another economist, Simbarashe Gwenzi, along the same vein, said that arresting illegal forex dealers does not solve market inefficiencies, but dealing with huge balances of unexplained wealth is what is going to help.

“The issue of parallel market rates is an issue of market imperfections. There’s an inefficient supply of forex and the government intervention in allocation opens gaps in the market due to the inefficient allocation of the forex,” Gwenzi told the Daily News.

“Arresting the agents doesn’t solve the market inefficiencies. However, dealing with large balances of unexplained wealth does deal with any illegal speculative behaviour using the excess liquidity in the banking system,” he said referring to the Unexplained Wealth Orders statute that will be used to confiscate all ill-gotten wealth.

“The bond notes do not really affect anything without speculative behaviour of players with large balances of money trading the USD balances in circulation.”

Leading economist John Robertson highlighted that making the bond note equivalent to the USD only benefits government officials, whilst ordinary Zimbabweans continue to suffer.

He said the country’s challenges are deeper than what government seems to be addressing.

“Claiming that the bond notes, or RTGS balances, are equivalent to US dollars in value gives privileged government officials who are the only ones who can easily exchange the money 1:1 with the US dollar, a wonderful opportunity to make profits for which no work is necessary,” Robertsons said.

The economist said the money issues are only symptoms of a deeper problem that government appears unwilling to address.

Robertson urged government to remove the hurdles that are derailing the country’s progress by accepting that market forces determine the value of the money used for imports.

“Market forces still dictate that money used to pay for imports is more valuable than money that has limited uses, so different rates of exchange will remain until the limitations are removed,” he told the Daily News.

“To remove them, our exports will have to grow larger than our imports so we can build reserves of the money we need. The limitations stopping that from happening were first imposed on farmers by government’s decision to cancel the collateral value of farmland.

“This is such a limiting concept that it is keeping the country poor. Private initiative needs to be set free by respect for ownership rights that will give investors access to bank finance as well as the confidence to make brave investment decisions.”

Comments (1)

Giving harsh sentences to illegal forex dealers will definitely not bring the desired results to the economy.This is a case of treating the symptoms instead of going to the root causes of the problem.Like the veteran economist Robertson has rightly said,the 1:1 rate for USD against the bond note,it is just in theory and if at all there are people who benefit from the unrealistic rate ,it is the government officials,not the ordinary person.Those illegal forex dealers at Roadport and all other corners in Harare are working for some high govt officials who access USD at the 1:1 rate then give that money to the guys at Roadport to buy Bond notes at a rate that is 3 times higher than the official rate and then they go again to acces more USD at the rate of 1:1.They have made tremendous profits out of nothing.They have become filthy rich,they own a chain of houses in the leafy suburbs,they have a fleet of very expensive vehicles and as we speak now they are now busy transferring their wealth to their relatives so that when they are being investigated they will be found with nothing significant.This involves cabinet ministers,permanent secretaries,RBZ and other financial institutions managers and all those tha are connected to these hardcore corrupt officials.

janana wa Bikaz madhogodhogo - 19 November 2018

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