The month of April saw resurgence of economic turbulence in the economy as the local currency continued to slump against the greenback. The parallel market premium widened from c.65% at the beginning of the month to c.101% at the end of April as the RTGS posted a double-digit decline for the third straight month within the year. Notably, civil servants were granted a 100% increase in the ZWL portion of wages within the period whilst policy rate was revised downwards possibly hinting to increased money supply.
The central bank has been pro-active with management of liquidity in the economy with the most recent introduction being gold backed digital tokens. As per RBZ press reports, the gold-backed tokens will be fully backed by physical gold held by the Bank. Minimum vesting period has been set at 180 days and the digital tokens will be held in either e-gold wallets or e-gold cards tradable also via Person-to-Person (P2P) and Person- to-Business (P2B) transactions and settlements. Holders of physical gold coins, at their discretion, will be able to exchange or convert, through the banking system, the physical gold coins into gold-backed digital tokens. The Bank also advises that the pricing of the gold-backed digital tokens in foreign currency shall remain the same as the pricing model of the physical gold coins whilst payment for the gold-backed digital tokens or physical gold coins in Zimbabwe dollar shall remain at the current 20% margin above the interbank mid-rate. Whilst the attraction for gold coins was the arbitrage presented when buying in local currency, the same can be said for the digital gold-backed coins giving incentive for players to willingly surrender their excess RTGS. In our view, there is however likely going to be a confidence issue with the digital gold coin lowering uptake of the product and hampering intended effectiveness of neutralizing excess liquidity. In this regard, pressure on the ZWL in the short term is expected to sustain.
Whilst the economy is moving towards full dollarization, there remains a niche of businesses such as formal supermarkets that are highly exposed to the local currency thereby putting pressure on their earnings.
