RBZ finally identifies actual cause of Zimdollar collapse but maintains old measures

Leonard Sengere Avatar
John Mangudya, Reserve Bank of Zimbabwe, RBZ, Monetary Policy Statement, Market Watch, Fintech regulatory Sandbox RBZ, Monetary Policy Statement MPC

When I first heard that the first step in problem solving is identifying the problem, I thought that was a bit condescending. Pre-teen me couldn’t understand how one could not know the problem they were trying to fix.

By the end of my teens I was well too aware of just how difficult it can be to identify the problem. When I went through a rebellious phase my mother forbade me from hanging out with certain friends, I felt sorry for her. I was the problem, not my friends.

As a collective, we have felt the same about our beloved Reserve Bank of Zimbabwe (RBZ). We have watched them misdiagnose the problem for years and years.

As our Zimdollar struggled, we saw the RBZ and the government wage war against ‘economic saboteurs.’ They were adamant that dealers/manipulators were the main reason for the Zimdollar tanking.

We all knew they were expending their energy fighting the wrong enemy. It was frustrating to watch but I’m happy to report that the RBZ’s eyes have been opened.

Governor Mangudya’s open eyes

It was late last year when we noticed the scales start to fall from the RBZ governor’s eyes. He shared the observations he had made in an interview.

People have got this heart, that obsession, that requirement to always hold foreign currency. They think it’s a more stable currency, which it is also.

Dr John Mangudya, RBZ Governor

Our governor thought we would be surprised to find out that Zimbabweans’ demand for foreign currency had nothing to do with imports. Which showed he and his team had been looking at the problem all wrong.

You would be surprised to find out that the demand factor for foreign currency is a store of value demand as opposed to the import demand for foreign currency.

Dr John Mangudya, RBZ Governor

At the time we remarked that not a single Zimbabwean who doesn’t work at the RBZ would find that surprising.

Now that we are on the same page with our RBZ overlords, will they start coming up with solutions that are more appropriate?

Uptick in inflation

The Monetary Policy Committee met on the 29th of April 2022 and they “noted with concern the recent uptick in month-on-month inflation, from 7.7% in March to 15.5% in April 2022, and the increase in annual inflation from 72.7% in March to 96.4% in April 2022.”

We have all felt this uptick in inflation. Recently we talked about how respected economist, Steve Hanke, calculated Zimbabwe’s year on year inflation in April at 207%. That’s quite higher than the RBZ’s figure of 96.4% and yet feels more accurate to my hurting heart.

Whichever figure you trust, the fact remains, inflation is getting out of hand. Why?

The committee says it’s “a combination of global shocks and the pass-through effects of the recent exchange rate depreciation on the parallel market.”

So, the Russia-Ukraine war and the forex black market. The committee believes the war takes a significant portion of the blame.

This is in line with other governments’ excuses. The United States is experiencing it’s highest inflation in 40 years and their government blames the same Russia-Ukraine war. Never mind that they have been printing the USD like their lives depended on it since 2008.

The war no doubt has some impact on our inflation. We have little influence on that and so most of our energy should go to the impact of the depreciating Zimdollar on inflation.

Sound economic fundamentals

The RBZ notes that on paper, the Zimdollar should not be depreciating like it is. Most economic fundamentals are sound and yet here we are.

Money supply

Our grief with the RBZ usually came from them printing too much money. They seem to have learnt their lesson and we have had multiple ‘excess money mop up’ exercises. By now, everyone knows what the RBZ means by ‘tight monetary policy.’

Reserve money has been hovering around the ZWL$28 billion mark for the past 6 months.

Annual growth in broad money was 151% in March 2022, compared to 384% in March 2021. A slowing growth rate in broad money supply is a good sign and yet inflation is surging even faster.

Favourable current account balance

Ask anyone on the street and they will tell you that Zimbabwe’s problem is that we are not producing enough. We need to export more than we import to lift this economy.

Well, in the first quarter of 2022 we generated US$2.4 billion in forex receipts, a 15% increase from last year, against payments of US$1.8 billion. That makes for a net inflow of US$600 million which helped increase the balances in our foreign currency accounts and national reserves to US$1.9 billion.

Any economics student will tell you that the above is good and yet it was in that same quarter that inflation roared. The economics student will remind you of the caveat, ‘all things being equal.’

All things are not equal in Zimbabwe and so what the economics textbook tells us to expect from a favourable current balance does not materialise.

Other economic fundamentals

The government under Mthuli Ncube has been responsible. They have been spending within their means for the most part. That’s another positive.

Then there is the issue of public works undertaken by the government. The RBZ sees these as a positive but that’s assuming all things are equal.

We discussed how analysts think these infrastructure projects hurt us in 2021. When the government announced they would be doubling their 2021 spend in 2022 it spelt trouble.

The main problem with the government spending billions on infrastructure is that all beneficiaries of that money look to convert it to USD at the earliest convenience. Therefore they flood the black market with Zimdollars, tanking our local currency in the process.

The problem of trust

Most economic fundamentals were sound in the first quarter and yet inflation increased. By process of elimination, the RBZ was forced to admit that the main problem in Zimbabwe is that of lack of trust in the Zimdollar.

The existence of strong economic fundamentals suggests that the recent exchange rate shocks are a manifestation of negative sentiments or perceptions attributable to people’s past experiences with hyperinflation and inevitable losses incurred during currency reforms. The Committee further noted that the erosion of people’s savings due to inflation compelled them to try and avoid similar losses by holding the US dollar as a store of value.

Dr John Mangudya, RBZ Governor

It’s sad that it took this long for these educated leaders of ours to get what the average Zimbabwean has been saying since the introduction of the bond notes.

The solution

With the problem accurately identified, the government and the RBZ believe they have the solution. It all boils down to enhancing confidence in the economy, dealing with market indiscipline and increasing demand for the Zimdollar.

i. Maintaining the 80% interest rate. The high rate is supposed to discourage speculative borrowing but when even the official inflation rate at 96.4% is above that, what’s the point of the 80% rate?

ii. Maintaining the minimum deposit rate for ZW$ savings at 12.5% per annum. This doesn’t make sense any more, inflation is at least 96.4% so who is going to be enticed to save when promised 12.5% interest.

iii. Maintaining a low reserve money growth rate of 5%. Nothing wrong with that.

iv. The $1000 limit on the willing-buyer-willing-seller arrangement for banks and bureaux de change to remain. Why does the limit exist? See, this is why we can’t call the official foreign exchange rate figures accurate. The RBZ won’t allow the market to work unfettered.


You may have noticed that none of the solutions are new despite the RBZ conceding that the problem is different. The following quote sounds ridiculous,

In view of the foregoing developments, the Committee resolved to maintain the status quo…

Dr John Mangudya, RBZ Governor

Here the monetary policy committe is saying that they noticed that the actual problem in Zimbabwe is the lack of trust in the Zimdollar. Which is different from what they thought the main problem was.

However, they are sticking with the solutions they came up with back when they thought the problem was something else.

You would have thought new problems require new solutions but you would have been wrong. The solutions that were in place as inflation soared should be good enough to reverse it.

I don’t get it but it’s what the RBZ is going with. Maybe they reasoned that since some of these measures were only introduced on the 1st of April, they deserved some more time in the limelight.

While I admit that 1 month is not enough for any measure to transform the economy, I still feel like maintaining the status quo after a disastrous month is not wise. So much for the RBZ’s eyes being open.


What’s your take?

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  1. b.muja

    People don’t trust a govt made of crooks and untrustworthy people never never, it’s not that people have Zanu that much but it’s the fact of lying announcing lies even patv 😅😅😅😅continue to lie and you will see us going to buy bread with a billion and also say the truth have nation at heart and people will support the country’s initiatives in nation building look at turkey at one time it was hit with functions Ari serious but the president urged people to bank their forex and they didn’t feel much heat unlike ours 😂😂😂 hatiuyi nayo kubank will continue to bank muzvigaba and kundotenga we go nayo tega kunze futi chenyu iduty hakuna kupa Mari bank in feel zvobatsiraa nyika nadda hatisungiri Mari pagumbo rengwe simple

  2. HM

    Does the RBZ know how much forex is in the country? I suggest they research thst before comming up with any so called solutions. This economy is an informal economy. The formal metrics are meaningless.
    Bread has been US$ 1 since the GNU. Sugar 2kg between $1.8 to $2.5. Mealie meal 10kg between $3 to $5 . Variations are caused by seasonal, droughts and international flactuations especially fuel prices. No significant inflation there.
    This so called hyperinflation is simply a reflection of the RBZ’s manipulation of the ZWD and the resultant abitrage and black market.
    Those who are affected are those paid in ZWD on the formal market. Apart from the civil servants, there are not that many left.
    So the RBZ is right. The formal metrics are useless. So maintain the status quo.

  3. Imi Vanhu Musadaro

    The “obsession” starts at the top. When these top dogs die, their next of kin are left fighting over large sums of hard cash stashed in their houses. Meanwhile, the average joe with his 100 usd, under the bed, will be blamed for crashing the currency.

    Ask any government official to produce a receipt from changing their USD to ZWL at a bank, there’ll be none. But, there will definitely be some who received sizeable allocations of USD from auction.

    We are just sick and tired of living in financial stagnation. A person who has been working for 20 years and one who has been working for 2 years, can easily be financially at par these days.

  4. P Muchena

    Hey guys I remember our current was bonded with gold bricks once apon a time.Why can’t we rebuild those bricks and have a strong current?

    1. Freda

      Biti tried to say it in paliament but was bood.Hapana kwatiri kuenda.

  5. P. Magwada

    Its RBZ
    The change monetary policies fun. One day 1USD=1ZIM DOLLAR. Farners sell maize@ Zwl75000. Tobacco 75% forex 25Zwl. Gold its something else. All these change overnight. Business is about planning

  6. Samson munakandafa

    The West normally uses your finance minister and central bank governor to destroy your currency causing horrible inflation like the 2008 with the previous governor.

  7. Prince

    It’s about Trust in the local currency – and how come its not there? Well because it’s too soon to claim there ZWL is stable, or that ‘fundamentals are good’
    Stability and trust is only established by consistency over time. Fundamentals have to be ‘good’ and stable for much longer than just a couple of years, for it to be accepted as the norm.
    A drunkard can’t claim they have quit drinking just because they have been sober for a day or two….
    The RBZ was lying through their teeth about 1:1, $200 million dollar AFREXIM guarantees, etc just the other day –

  8. Masvingo Zimuto

    The problems is Mangudya himself. He using Zimbabwe as a Laboratory to experiment on how to stabilize the economy under a government full of incompetent leaders. There is no government or army strong enough to oppose the market forces and win. That’s like trying force Zambezi river to flow from east to west.

  9. Masvingo Zimuto

    The problems is Mangudya himself. He using Zimbabwe as a Laboratory to experiment on how to stabilize the economy under a government full of incompetent leaders. There is no government or army strong enough to oppose the market forces and win. That’s like trying force Zambezi river to flow from east to west.

  10. Steve Hove

    The really problem is multi facetted:
    We have:-
    1.Commentators who think they know , when they don’t, so no incentive for RBZ Governor to give them an ear;
    2.Industrialists who give the impression that they can produce, when they cannot, so importers ignore their rants.
    3.Politicians who have privileges and abusing them as they wish, carrying cash in bags and depositing in other countries simply because they are not subjected to search at ports of exit;
    4.Parliamentarians who pass bad laws/ do not pass good laws and expect citizens to observe them.
    5.Corruption that has permeated all facets of Zim society, not even sparing the church;
    6.Fast adoption of western living styles and standards without the requisite resource base to back it.
    7.A redundant Forex Auction System that clearly is manipulated but continue to syphon forex out of legit owners (Exporters) in the name of national laws(bad laws)
    8.A judiciary system that is financially illiterate. A commercial case involving Z$10 000 000.00 on 19/2/2019 remaining on court rolls on 7/5/2022.
    8.1.The judge handling such a case thinks naively or legally that grunting a judgment to plaintiff in that case is helping plaintiff, without realizing that its a mockery of the judiciary and its stewards.
    See the Maths: Z$10 000 000.00 on 19/2/2019 = US$ 10 000 000.00 according to the famous finance act No 2 of the same period.
    On 7/5/2022, ZW$10 000 000.00= US$60 240 .96 according to RBZ’s current Auction Rate
    The same ZW$10 000 000-00 = US$ 22 222.22 according to the open market rates.
    According to the judge handling such a matter, he has done justice to the matter. You can see that even our definition of justice is weird, unimaginable and in very bad taste.

    Why should commercial cases take 5+ years to arrive at a judgment without the financial value adjustments that it should go with? Its rampant robbery on citizen wealth of unimaginable scale. Few realise that.

    Why are our parliamentarians spending time exchanging words (zvinyadzi) with no thoughtful new legislation, to address today’s problems bedeviling citizens and the economy?

    Without going into the economics of currency which are obviously complex, judging from the comments above, can those with authority not address simple challenges that can put a stop to the bleeding of the economy in so many ways?
    Many countries have addressed perenial inflation by adopting blockchain technology. El Salvador is a good example. It was using the US$ to combat inflation just like Zim. Now they have jumped into the bandwagon of progressive nations by simply adopting the inevitable. In Zim ,there is not even talk of this life changing technology (Block chain/ Cryptocurrency and digital currency).

    Besides the RBZ circular of probably 2008, no discourse in the public space about Crypto, nothing. Wishing this technology away is like wishing internet away before it became the in-thing. Technological conservative leaders are a cost to national progress. The US$ is going, remember its not the first reserve currecny and its certainly not going to be the last, the Americans do not like it any more because they think the FED is manipulating it to their detriment. They want Crypto which has no authority controlling it.

    Zimbos need to think the same way. I am surprised by many legislators advocating for dollarization. Such people should never be allowed near the reins of power. They are worse off than those advocating for the ZW$. The world has moved. Zimbabwe needs to adopt Crypto technology in the same way other African peers have done. See the Example of SA, Kenya, Nigeria, Tanzania, and most strikingly CAR.

    Debating currency issues in Zim is a waste of time. If Eddie Cross proposals had been implemented back then, we could be out of this mess. Zimbos will suffer double loses by holding on to US$ which are on their way out in the country of origin. We must move with time in my view.

    1. 2434

      Crypto is just as volatile as our currency.

      1. African Technocrat

        I think you misunderstand the merits being pursued in the use of Crypto and also forget that Zimbabwe can establish its own cryto currency coin. Why would you want to use Etherium, Bitcoin or Cardano which can equally be manipulated externally. Zimbabwean crypto currency would ensure that if someone tampers with the currency everyone knows who did it and when. Right now we have no idea who’s causing the runaway inflation and can only assume. But ghost RTGS payments would be a thing of the past

    2. Anonymous

      Well illustrated boss…

  11. Tazviinga

    They are only adopting old solutions so that the looting grounds remain fertile. The best solution was proferred by MDC Legislators in 2009,so Zanu does not want to swallow its pride and accept it

  12. Tendai

    Retire all and put in fresh younger techs who are upto date with what’s going on.These madalas have become obsolete in present day digital age.

  13. M2

    In Shona we have the old saying “rina manyanga hariputirwe”. The reserve bank may try as hard as it wants and lie that money supply is on a tight leash but the exchange rate will always expose that lie. There is only one source of mega inflation which is the central bank printing money, i.e. making RTGS payments out of thin air.

  14. Ab

    Government states everyone must use zim dollar, but you must pay import duties , taxes and or any other payment to government in usd. Only place in the world this happens. Government has one of the highest taxes on imports, fuels and the likes in the world. Wonders why so many people avoid this and has such a big informal market. Instead of working to make sure districts and those in charge of the districts actually for their job, go and make sure informal markets are paying for licences, making sure police are actually on the ground doing their job, (not stupid road blocks only looking for this once a month) removing bad drivers, removing bad vehicles, inputting a MOT system. Allowing people to import what they want, charge what they want. No its price control, allowing the likes of high powered sons to own financial institutions which are directly pushing the black market but allowed to operate as they wash ill gotten gains, spartan securities being one of them, we all know who the real manipulators are, just happen to belong to someone’s son… allowing minsters clearly caught to get away with they want, when they are connected to someone’s son.. the only way they going to fix things is by removing those in power who are using to their own advantage. But they can’t exactly arrest themselves and everybody they work with. This is both mdc and zanu… both are just corrupt and only argue about who can steal next. There is never any actual person who is interested in fixing things. First place to start is make people do their job, entice people to pay licences, taxes so more are legitimate by reducing such things and making them easier to obtain, promote production, invite companies like BMW Mercedes and the likes to set up factories with encentives. Stop exporting raw product and start building industry to export finished product. Thus creating more jobs, more taxes more infrastructure. If people didn’t need to worry about the rate then there wouldn’t be a rate. If companies didn’t need to worry about their exports being stolen then they wouldn’t hide 70% of them. If Government stopped trying to control the people by force and incetivised they would get a much bigger piece of pie to steal.

  15. Hugh Jarse

    What’s all the bleating for now? Don’t forget what you, the citizens and voters, have allowed to go on, unchecked, since 1985! This last election proved it. Not only did you not give change a chance, none of the opposition had a plan to minimise, let alone stop, vote rigging, despite their claims that they could, and voters have show little to no interest either, since the referendum. Self inflicted harm best describes it.

  16. TheAviator

    Zimbabwe would not be in its current position if it hadn’t been for Mugabe. He destroyed the country with his policies. Even under the Smith regime of Rhodesia, the country was wealthy despite sanctions. The Bread Basket
    of Africa. Although l understand his intentions, the local people weren’t ready to take over from the European and together with his corruption, the country slid into decline. The banks problems stem from the Mugabe policies and subsequent leaders appear to be following his policies but less extreme. The two tribes must learn to work together and fairly. The Mashona and the Matabele should select their leaders on ability and vote accordingly. Tribalism is a thing of the past and has no place in the 21st Century.
    Zimbabwe deserves better.

  17. Makuni

    Their solutions are only aimed at fattening their pockets rather than satisfying the needs and wants of the general citizenry. If and only if the Politicians act fairly with regard to bread basket and per capita income, they would have noted that ZWL is nothing but a joke to the citizens of Zimbabwe, why can’t they adopt even the use of Rands or even that use of crypto currency.