Friday, July 17, 2009

Zimbabwean government to buy out Zimdollar

Published: July 16, 2009
ZIMBABWE – HARARE – The Zimbabwean government would require at least US$6 million to mop the Zimbabwe dollar in the market in order to remove the uncertainty that had remained over the fate of the local currency.
Unveiling mid-term fiscal review budget statement yesterday, Minister of Finance, Tendai Biti said the current state of the economy could not sustain the re-introduction of the local currency.
He said formal demonetisation should allow for settlement of all remaining Zimbabwe dollar transactions and obligations prior to the introduction of the multiple currency system as well as the revaluation of all other Zimbabwe dollar balances for accounting purposes.
“At the present moment, estimates indicate that about US$6 million will be required to purchase the entire stock of Zimbabwe dollar balances with banks as well as cash outside the banking system.
“However, current capacity to raise the required US$6 million is limited. I am, therefore, proposing that Zimbabwe’s debt to the economy arising out of demonetisation be handled on the same terms and legal framework that I will propose to govern some of the debt obligations of the Reserve Bank,” he said.
The Minister said implementation details, which will take into account the necessity of protecting holders of small balances would be announced at an appropriate time.
“The conclusion of this process will officially bring to an end claims on the use of the Zimbabwe dollar as a unit of account, medium of exchange and store of value,” Biti said.
Biti said the conversion rate of US$1 to $20 would apply.
He said only when the country has increased production capacity to the envisaged levels of 60 percent and exports had risen top contributing at least 15 percent of the Gross Domestic Product would talk of the re-introduction be entertained.
“What has emerged are just green shoots. They need to be watered for them to growth. The economy is too fragile to support the re-introduction of the local currency,” he said.
He said the hyper inflationary environment that prevailed over the past decade resulted in the loss of value of the local currency, rendering it unacceptable as a medium of exchange by most traders.
The minister said in order to facilitate business transactions, Government formalised the use of multiple currencies.
He noted that some of the balances brought forward as at 31December 2008 are derived from transactions denominated in Zimbabwean dollars.“It is, thus, necessary to denominate such balances in foreign currency. The challenge that arises is to determine an appropriate exchange rate to convert the local currency balances into foreign currency.
“The exchange rate of 1US$:ZW20 that was applied before the adoption of the multiple currency system may be used to convert balances arising from transactions in local currency to foreign currency.
“However, in some instances, it is unrealistic as it results in nil balances for assets that still have a residual value, for tax purposes.
“In cases where taxpayers have prepared balance sheets in foreign currency and have documentary evidence to prove that transactions were conducted in foreign currency, I propose that the Commissioner General approves such financial statements for tax purposes.
“In respect of other cases where carried over balances from 2008 are denominated in local currency, taxpayers will be obliged to convert such balances to foreign currency. The Commissioner General will provide guidelines on the conversion factor of these Balances,” the minister said.- The Zimbabwe Telegraph.

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