On Monday, Mthuli Ncube, the Finance Minister of Zimbabwe, said that the new currency of the country will be backed up with fiscal discipline. He added that the government would allow the RTGS dollar to fluctuate, however, he noted that it would manage excessive volatility.
In an interview with Reuters, Ncube said the central bank drip-fed dollars to a handful of commercial banks in order to allocate to large businesses. It is a part of efforts to ease a cash crunch that has starved the nation of various basic goods.
He said that the investors should not worry about the government ramping up issuance of Treasury bills, as compared to what it had done in the past.
Ncube stated: “That tap is closed for now.”
Some business executives and economists are concerned that if Zimbabwe does not curtail its borrowing, it could likely fuel inflation and a black market for dollars, making a foreign currency interbank market that the central bank has launched last week redundant.
Last week, Zimbabwe abandoned a discredited 1:1 dollar peg for its dollar-surrogate bond notes and electronic dollars. It merged them into a lower-value transitional currency that is called the RTGS dollar.
The central bank has been selling dollars to banks at a rate of one U.S. dollar to 2.5 RTGS. The level was criticised by bankers for being too low, however, Ncube said that it was appropriate for now. He dubbed it as an “initial trigger point.”
He did not disclose where Zimbabwe got credit lines to launch the RTGS currency or the amount of those credit lines.
He stated: “Actually we can’t tell you how deep our pockets are or how shallow they are. If markets believe you have too much money they can bet by saying we are going to make money out of these guys.”
Ncube said that the government was in negotiations with the International Monetary Fund over securing a staff-monitored programme. He also said that the government had enough resources to meet the demands of the civil servants for salary increases.