THE naming of individuals this week by the Reserve Bank of Zimbabwe whom it accuses of facilitating illegal foreign currency transactions and money-laundering activities in the country as the exchange rate runs amok is yet another piece-meal measure which does little to inspire confidence.
The move by the bank’s Financial Intelligence Unit (FIU) to expose and punish individuals by, freezing their accounts for two years and stripping them of access to mobile communication, comes as the disparity between the official exchange rate, which is at ZW$87, and the parallel market exchange rate, which stands at more than ZW$160 widens. This means the parallel market rate is almost double that of the official rate which increases inflationary pressures and erodes incomes.
“The FIU, in collaboration with law enforcement agencies, will continue to monitor various social media and bank accounts to identify and take action against perpetrators of illicit dealings,” the central bank governor John Mangudya said in a statement this week on the accused individuals.
However, the move has barely created any excitement in the market and the reason is simple. This is not the first time the central bank has bared its fangs over alleged illegal foreign currency transactions that have wreaked havoc on the economy to no avail.
Barely two months ago the central bank exposed “outliers” including listed milling giant, National Foods, which it said were “abusing” foreign currency acquired through the auction system pointing out they had fined some of the companies for the violation.
The government in May this year promulgated Statutory Instrument 127, which prohibits business operators from charging above the official exchange rate and empowers authorities to punish those that refuse to accept the Zimbabwean dollar for local transactions.
The central bank, however, retreated with Mangudya saying that SI 127 would now be limited to those who wantonly abuse the foreign exchange auction system, manipulate the exchange rate and do not comply with anti-money laundering regulations after a huge outcry by business. The government last year abruptly suspended trading on the Zimbabwe Stock Exchange for more than a month on allegations of illicit activities as well as halting the fungibility of three counters, namely Old Mutual, Seed Co and PPC. Despite all these measures the government has failed to stop the galloping exchange rate and this week’s move to name and shame individuals for illicit forex trading will not effectively stem the disparity between the official rate and that on the parallel market. The government needs to let the market determine the exchange rate and “not attempt to control it”. That business, including government departments, do not use the official exchange rate when trading is testimony to the futility of government’s efforts “to control” the rate through the foreign currency auction market which excludes a large sector of the market. As prominent analyst Stephen Chan noted that efforts to control the exchange rate via the foreign currency auction market were similar to “trying to stop a herd of runaway horses by pointing to a traffic light”.