Harare – Activities by Government which culminated in the growth of RTGS or usable balances is responsible for the prices and foreign currency exchange rates evident in the country, says Economist and founder of Percycon Advisory Services, Persistence Gwanyanya.

Presenting at this year’s edition of the SMEs International Business Expo in the capital on Thursday, Gwanyanya said the growth in RTGS balances was coming from primarily increased Government borrowing through Treasury Bills and overdraft on the Reserve Bank of Zimbabwe.

“Treasury bills as we speak right now they stand at around $6.7 billion. With maturities the amount stands at about $8.3 billion

“Overdraft on RBZ is around $2.3 billion, so in total our domestic debt stands at $9.5 billion. So clearly $9.5 billion is the one that has been feeding into the RTGS or usable balances hence that mismatch and the market forces would naturally kick in to manage the demand and supply of foreign currency.

So it is unsurprising that the prices had to increase. So they have increased and reached the ceiling 1:6, 1:8 thereabout. But always remembering that we have got market and foreign currency dealers who control this market.”

Gwanyanya said in his own view the 1:7 reached is the maximum that the country could stretch to.

“So the next thing was for the price of the exchange rate to go down because the dealers could not make money by continuing to increase the exchange rate when it has reached what could be perceived as the maximum, so it has to go down significantly to create the space for further adjustment and for opportunity to make money.

“So the exchange rate has gone down to as low as 1:2 and what it means is that the RTGS balances of $2 billion or so was reduced to $1 billion because of the prices, so in real foreign currency terms the RTGS has been reduced because of the foreign currency exchange rate.

“When it increased to 1:6 it means the RTGS balance in real US$ terms was reduced, that’s why the prices of foreign currency has to go down.”

He said the rate is now starting to increase but obviously that was aided by the news that came out of the market the ministry of Finance and RBZ is organising a facility for the convertibility of all the RTGS balances in the accounts.

He said it is of paramount importance to remind each other that Zimbabwe is a dollarized economy but overnight the country have been pushed out of the dollar era.

“Today as we speak, we have about $300 million foreign currency in circulation against RTGS or usable balances of about 2 billion.

“So this is a correction I would like to make because it seems the understanding is the RTGS or usable balances in the economy is around 6 billion but the correct position is 2 billion. What it means in terms of the monies in the economy, RTGS or usable balances are 8 point something in excess of 8 times of foreign currency in circulation.”

Gwanyanya said being a dollarized economy the country ordinarily would need foreign currency to take care of foreign payments as well as local payments.

“So at a ratio of 1:8 it is clear there was supposed to be adjustment either in the price mechanism or another external force to share the limited foreign currency noting that foreign currency has to be used for both local and foreign payments.

“And it is unsurprising therefore, that in the last week or so, we have seen prices skyrocket, we have seen the exchange rate spiking to as high as 1:7 which is slightly or around the ratio that I have spoken about.”

He added that mechanically, the country can arrive at a crude measure of what was happening in the economy.

“It simply reflects that there is so much demand for the limited foreign currency coming as a result of the growth in usable balances.”

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