Zimbabwe: Central Bank to manage volatility of new RTGS currency

File: Finance Minister of Zimbabwe Mthuli Ncube, gestures during an interview with AFP at the World Economic Forum (WEF) annual meeting, on January 22, 2019, in Davos, eastern Switzerland. (Photo by Fabrice COFFRINI / AFP)
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HARARE (Reuters) – Zimbabwe’s central bank will buy or sell dollars to manage volatility in the RTGS currency it launched last week, Finance Minister Mthuli Ncube said on Monday, adding that the government would not borrow irresponsibly.

Ncube spoke as the central bank drip-fed dollars to a handful of commercial banks to allocate to large businesses, part of currency reforms authorities hope will ease a cash crunch that has starved the economy of many basic goods.

He told Reuters that investors should not worry about the Zimbabwean government ramping up issuance of Treasury bills. “That tap is closed for now,” he said.

Economists and business executives worry that if the government does not curtail its borrowing, this will fuel money supply and black market for dollars, making the new forex interbank market redundant.

Zimbabwe ditched a discredited 1:1 dollar peg for its dollar-surrogate bond notes and electronic dollars last week, merging them into a lower-value transitional currency called the RTGS dollar.

Ncube said of the 2.5 rate at which the central bank has sold U.S. dollars to banks that it was an “initial trigger point”.

“We are also of the view that the rates existing in the parallel (black) market are rather on the high side,” he added.

Ordinary Zimbabweans are not yet able to use the RTGS dollars in their bank accounts to buy dollars from banks, and the bond notes – which many businesses are reluctant to accept – are still in circulation.

Alexander Winning, MacDonald Dzirutwe

Additional reporting by Alfonce Mbizwo, Editing by John Stonestreet and Ed Osmond