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Harare Bureau
THE interbank exchange rate has been set as the sole exchange rate to be used in commercial and other transactions and anyone selling goods and services, who uses any other rate faces a minimum civil penalty of $20 million.

The new legislation does allow a 10 percent addition to the interbank rate, which will cover any changes between the customer paying and the seller buying new stock and the margin banks charge. Interbank rates are set within a banking system adjusting the rate to match what willing buyers and willing sellers demand and can supply.

There is no intervention by the Reserve Bank of Zimbabwe or the Government in setting this rate. Interbank rates are what almost every country in the world uses to set its exchange rates.

The present multi-currency regime, which has not been changed, is guaranteed for the life of National Development Strategy 1 (NDS1), so businesses are assured there will be no sudden dedollarisation during the period, a factor that was worrying some and causing a degree of uncertainty and adding to pressure in the black market.

President Mnangagwa used his powers to sign off on the Presidential Powers (Temporary Measures) (Amendment of Exchange Control Act) Regulations on Monday. They apply for the life of the NDS 1 that came into effect at the beginning of the year and runs until 2025.

The new law was gazetted as Statutory Instrument 118A of 2022. Parliament will need to approve the regulations to make them permanent law but this should not be a problem considering the Government majority.

The legal changes now back the collection of measures explained on Monday by Finance and Economic Development Minister Mthuli Ncube to restore market confidence, stabilise the Zimbabwe dollar, which has come under attack from speculators and arbitrage, rein in resurgent inflation and ensure discipline in the economy.

The huge civil penalties, $20 million in local currency or the equivalent of the value of a breach in foreign currency pricing, whichever is higher, provide the authorities with some serious teeth to end any attempts to use black market exchange rates when setting prices.

Civil penalties are far simpler to impose than criminal fines, since they only require proof on the balance of probabilities rather than proof beyond reasonable doubt and can be imposed by an official, rather than a court.

Many of the provisions are already in existence, as settled policy, but are now officially law.

On the subject of maintaining the existing multi-currency regime that allows buyers to use local or foreign currency, the regulations read: “The provisions of the Schedule, insofar as they express or impliedly permit the settlement of any transaction or payment for goods and services in foreign currency, shall be valid for the period of the National Development Strategy 1 (the national economic plan for the period from January 2021 to December 2025, published on November 16, 2021).”

In terms of the law, corporates and individuals can continue to receive credit denominated in any foreign currency from an authorised dealer or any other banking or financial institution but from now on repayment must be made in the same currency.

This prevents what were perceived as risks when repayment could be in a different currency from what was lent.

Prior to the setting of the interbank rate from the beginning of August, local prices were supposed to be set using the prevailing average auction bid. However, many businesses have been pricing their goods and services using black market rates.

However, the interbank market was allowed to expand in May and shortly afterwards the Reserve Bank of Zimbabwe brought the auction rate into alignment with this independent rate by rejecting a lot of bids that were considered too low.

The midrate for the Zimbabwe dollar, the halfway point between what banks bought and sold in foreign currency, was trading at 365,2 per US$1 on the interbank market yesterday.

A “person shall be guilty of a civil infringement if he or she, being a seller of goods or services, offers such goods or services at an exchange rate above 10 percent of the prevailing interbank rate published by the Reserve Bank of Zimbabwe,” an excerpt from the law says.

The regulations make non-compliance with using this interbank rate severe. In the event of non-compliance, “the civil penalty shall provide for a combination of a fixed penalty of 20 million Zimbabwe dollars or an amount equivalent to the value of the foreign currency charged for the goods or services in question (whichever is the greater amount)”.

While the guilty business is looking for this sort of cash, the bill keeps mounting by 5 percent a day for up to 90 days, so those who do not pay quickly could face a bill several times their $20 million.

Finance and Economic Development Minister, Professor Mthuli Ncube, said on Monday that continuing the use of multi-currency would help the country stem rising inflation, now at 191,7 percent and restore confidence in the economy.

The annual inflation rate, driven largely by the Zimbabwe dollar’s depreciation against major currencies and also the impact of the war in Ukraine, which has disrupted global supply chains, has threatened to track back after touching a post-dollarisation high of 837,5 percent in 2020 before progressively trending down due to measures policies implemented by the Government.

“The market lacks confidence that the multi-currency system is here to stay for the foreseeable future. To eliminate speculation and arbitrage based on this issue, the Government has decided to embed the multi-currency system and the continued use of the US dollar into law,” Minister Ncube said.