Mangudya Delays MPS As Gvt Works On Structure To Back Currency

Zimbabwe’s Reserve Bank of Zimbabwe Governor Dr John Panonetsa Mangudya has delayed his Monetary Policy Statement (MPS) seen as his last before he hands over the reigns to his successor another John, though a Mushayavanhu, former FBC Chief Executive Officer all due to Mangudya’s working on a structure to back currency.

Governor Mangudya’s MPS is expected to heavily carry details of the anticipated structured currency.In an exclusive interview with TechnoMag, Governor Mangudya acknowledged that Zimbabwe’s economic growth was being driven by foreign currency while rapid inflation was a consequence of the unstable and depreciating local currency.

“So, as I said before, we want to ensure that we stabilise the currency,” Mangudya said to this publication, adding the bank had delayed releasing the 2024 MPS to complete ongoing work on the structured currency.

The Head of State and Government and Commander in Chief of the Zimbabwe Defence Forces, President Mnangagwa recently echoed that the Government was working on introducing a structured currency to curtail rapid inflation increases driven by depreciation.

Mnangagwa revealed this while addressing a post-Cabinet briefing at State House on February 6, 2024, when he emphasized that his Government would prioritize introducing the structured currency to arrest price hikes while creating a conducive economic environment.

The Outgoing Governor Dr Mangudya said his central bank was working to put in place the framework to make sure the new currency has a valuable anchor that backs it.

“We are working to ensure that the structured currency is anchored, and backed. When the President announced that there would be a structured currency, it meant there should be a structure to back that currency.

According to the Governor, a structured currency is a mix of a fiat currency, whose value derives from trust in the government regulations and the central bank’s monetary policies, and a physical commodity-backed currency stored in a vault somewhere.

“The very instrument that supports the currency is what he was talking about. For instance, a building has a foundation, what it means is that we are working on the foundation to ensure the structure stabilises the currency.

“That structure requires us to put in place a mechanism that anchors that currency.

“80 percent of our transactions are in forex, and 20 percent of transactions are in local currency. There is no challenge with (forex transactions), growth comes from there,” said Mangudya.

“Exchange rate volatility comes from (local currency) transmit volatility which goes into the pricing system. That correlation is what is called pass-through effects on domestic prices.

“It means we are all now agreed within the Government that we have growth, which is being disturbed by this volatility.

“As such, we have growth with inflation,” Mangudya said.

Mangudya added that the stability expected to come through the structured currency would instill confidence, as economic agents would see the anchor instrument or an asset backing the new currency.

“If we give value to this structured currency, that value is not derived from the paper currency one will be holding, but from the asset backing it. Once we have such an arrangement, the medium of exchange becomes stable.”

Governor Mangudya said the instrument to back or anchor the currency was what the central bank and Government were working flat out fully determined, which should be announced in Mangudya’s 2024 MPS.

The Governor also said once the framework and operational modalities for the structured currency were put in place, authorities would then work on availing the necessary liquidity to operationalise the structured currency.

In essence, the Reserve Bank of Zimbabwe has doubled down on efforts to curtail Zimbabwe dollar exchange rate volatility, with the apex bank delaying releasing the eagerly awaited 2024 monetary policy statement (MPS) to finalise modalities for introducing the country’s impending structured currency.

The RBZ Governor also r
revealed to TechnoMag , that there was concurrence within the Government and key institutions of the State that weaknesses associated with domestic currency were responsible for driving the exchange rate volatility, which is blamed for fueling inflation in the country.

Zimbabwe inflation rate increased to 47,60 percent (annualised) in February from 34,80 percent in January of 2024. The rate averaged 42,63 percent from 2009 until 2024, reaching an all-time high of 785,55 percent in May of 2020 and a record low of minus 7,50 percent in December of 2009.

The inflation crisis peak in 2008, saw Zimbabwe’s annual inflation rate climb to a record 500 billion percent, according to the International Monetary Fund (IMF).

Ross Moyo

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