Exchange Control Division
History of Exchange Controls in Zimbabwe
Pre Independence Era
Exchange controls in Zimbabwe date back to the pre-independence era. In fact, a tight and stringent Exchange Control system was introduced during the Unilateral Declaration of Independence (UDI) period to alleviate possible Balance of Payments problems due to economic sanctions. During the UDI period, the country administered a tight and stringent Exchange Control system in terms of the 1977 Exchange Control Act [Chapter 170] and its Regulations.
1980 – 1990 Era
After independence, between the period 1980 and 1990, Zimbabwe sustained policies aimed at suppressing imports to assist in the maintenance of external Balance of Payments support and meeting of debt service obligations. Rigid and extensive foreign exchange controls were administered through the Foreign Exchange Allocation and Import Licencing systems. The Cabinet Committee on Financial and Economic Affairs determined global foreign exchange allocation whilst an Inter-Ministerial Committee decided on the sectoral foreign currency allocation.
In 1990, the IMF/World Bank sponsored Economic Structural Adjustment Programme (ESAP) was introduced leading to the liberalization of the trade and exchange system. The major controls during this period were:
• The imposition of a total embargo on dividend and income remittances for a two year period.
• The introduction of the 4, 6, 12 and 20 year government external bonds.
• The introduction of the Open General Import Licence (OGIL) and No Currency Involved Import Licence where the Ministry of Industry issued import licences once Exchange Control had approved the payment for the imports.
• The introduction of the Export Revolving Fund
1991 – 1995 Era
Policy shifted towards the introduction of a fully liberalized trade and exchange system. This led to the free floating of the exchange rate, the deregulation of the financial sector and the introduction of Foreign Exchange Bureaux de Change in mid 1994. The Current Account was fully liberalized in 1994 with transactions conducted in terms of the Instructions to Authorized Dealers which borrowed most of its provisions from the ‘Green Book.’
1996 – 2003 Era
The Zimbabwe Programme for Economic and Social Transformation (ZIMPREST) was implemented for the period 1996 – 2000. Exchange controls were also further relaxed, a move which resulted in empowering Authorised Dealers to authorize most of the current account transactions in 1996.
In 1997 the country started experiencing critical foreign currency shortages following the ‘crush’ of Zimbabwe dollar on 14 November 1997. The Reserve Bank withdrew more of the Authorized Dealers’ delegated functions. All foreign exchange applications were centrally processed and approved by the Reserve Bank. The situation was still worsened with the withdrawal of IMFs funding in 1999 that culminated in further reviews of some of the Exchange Control policies. With the continued and persistent shortages and externalization of foreign currency and a mushrooming parallel market, for foreign currency, there was need to further review the existing foreign currency policy. This led to the introduction of the current batch system through Directive RD 346 of 15 November 2002. The introduction of this system meant that Authorised Dealers were completely stripped of their powers to approve foreign currency payments. The Exchange Control solely dealt with all foreign currency payments, leaving the Authorised Dealers only with powers to vet applications submitted for approval by the Exchange Control.
2004 – 2008 Era
Foreign currency shortages remained a real challenge to the economic. To address the challenges, the Reserve Bank introduced a Managed Foreign Exchange Auction System on 12 January 2004. Foreign currency users submitted their bids to the Auction Floor for allocation of foreign exchange through their Authorized Dealers . Later, the Foreign Currency Auction system was replaced by the Tradable Foreign Currency Balances System (TFCBS) on 21 October 2005. Under TFCBS, a dual exchange rate system prevailed with market transactions being conducted at the inter-bank market exchange rate and critical Government payments being conducted at the official exchange rate. The dual exchange rate system was abolished in April 2006 to consolidate and support the growth of the export sector. That resulted in all transactions being conducted at the prevailing inter-bank exchange rate.
Exchange Control (Foreign Exchange Licenced Shops) Order, S.I. 131/08 was promulgated in 2008 in response to excessive shortages of basic foodstuffs and raw materials which precipitated an increase in the volume of imports of finished products from the region and the Far East by both the formal and informal sectors. The Reserve Bank realized that the country could immensely benefit by tapping into the foreign currency resources which were being used to import various goods from across the borders. Some retail outlets were thus designated to adopt dual pricing to enable Retailers to sustain business and replenish their stocks without disruption of supplies to the market.
Post 2009 …
In 2009, the Exchange Controls were liberalized in light of multi-currencing regime. Current Account transactions were liberalized to facilitate the free movement of goods and to create confidence in the economy. All applications for foreign currency payments were left to the Authorised Dealers. Surrender requirements and the exports approvals by Exchange Control were removed, and only left the instruments which are necessary for collection of foreign trade statistics. Liberalisation was only extended to Current Account transactions. Capital account transactions remain restricted.
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