Zimbabwean banks – which include units of Nedbank, Standard Bank and Standard Chartered – are in the line of fire after President Emerson Mnangagwa accused finance institutions of "stashing" foreign currency for speculative street currency dealings, thereby fuelling high inflation through exchange rate distortions.
Zimbabwe is struggling for foreign currency and has been unable to pay for key imports such as fuel and medicines. Until now, government officials have blamed mobile money agents for driving the soaring street currency trade, which has driven up the parallel market rate for the Zimbabwe dollar to 1:60 compared to the official interbank rate of 1:25.
Mnangagwa on Thursday took aim at banks, accusing them of involvement in illegal street currency dealings, and demanding that finance institutions start to pay interest on Foreign Currency Accounts held by corporates and individuals.
"He (Mnangagwa) said he was concerned by the spiking parallel market rate for foreign currency which he blamed for price increases," said a Zimbabwean politician, who attended a meeting of Mnangagwa and leaders of other political parties that exclude the main opposition MDC Alliance, led by Nelson Chamisa. "He (Mnangagwa) explained that banks were involved in the parallel market where they were selling foreign currency at higher rates, and everyone was surprised to hear this."
The meeting followed a meeting the previous day between the Zimbabwean leader and the Presidential Advisory Council, which includes business leaders in Zimbabwe. Finance Minister Mthuli Ncube this week called for robust regulation to control the parallel foreign currency market.
This came as supermarkets, manufacturers and other businesses hiked prices of goods, commodities and services. Mnangagwa’s spokesperson, George Charamba, tweeted on Thursday that there was a "hierarchy of misdemeanours" worsening the exchange rate and "price instability" in the economy.
"Banks have been stashing foreign currency which is then used in the market to spike exchange rates and prices. Government (has intensified) surveillance (of banks), and has introduced curbs to daily banking operations, including forcing banks to award interest on FCAs," said Charamba on Twitter.
Zimbabwe has already charged the predominant mobile money platform, EcoCash, which it alleges is running a Ponzi scheme that is precipitating the exchange rate; while the central bank has also asked banks to limit transaction values.
However, the head of operational risk for Fitch Solutions, Chiedza Madzima, says such controls to plug forex leakages are inadequate.
"Zimbabwe's government is looking to clamp down on FX leakages. What the country really needs is proper adherence to existing AML/CFT controls, stronger anti-corruption efforts and liberalised formal financial markets + functional FX regime," she said.