FULL TEXT: The New Monetary Policy : Legal Issues (Veritas)

4 years agoFri, 22 Mar 2019 13:54:04 GMT
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FULL TEXT: The New Monetary Policy : Legal Issues (Veritas)

The Governor of the Reserve Bank of Zimbabwe delivered his Monetary Policy Statement on the 20th February and, amongst other measures, announced the following:

  • Dollar balances held in local FCA bank accounts and mobile payment platforms, as well as bond notes and coins, would no longer be regarded as equal in value to United States dollars.
  • Local dollar electronic balances and bond notes and coins would become “RTGS dollars”, part of Zimbabwe’s multi-currency system and trading at an exchange rate fixed by market forces.
  • An inter-bank market would be established for trading RTGS dollars with foreign currencies on a willing-seller willing-buyer basis.
  • RTGS dollars “shall be” used by everyone, including Government, for pricing goods and services, recording debts, accounting and settling domestic transactions.  This would eliminate the system whereby goods and services are priced and charged in foreign currency or in both local and foreign currency.

Within a commendably short time two legal instruments were gazetted to give effect to these measures:

On the 22nd February the Reserve Bank issued a Directive to Authorised Dealers, RU 28/2019, to implement further aspects of the Monetary Policy Statement. 

Financiers, economists and other experts have analysed the economic effects of these measures, and Veritas does not wish to add to what they have said.  Instead we shall comment on some legal issues which do not seem to have received much attention.

Constitutionality of Statutory Instruments

Both the statutory instruments that give effect to the new monetary policy are open to challenge on the ground that they are unconstitutional by virtue of section 134(a) and (d) of the Constitution, which state:

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“Parliament may, in an Act of Parliament, delegate power to make statutory instruments within the scope of and for the purposes laid down in that Act, but—

(a) Parliament’s primary law-making power must not be delegated;

(d)  the Act must specify the limits of the power … and the principles and standards applicable to the statutory instrument.”

SI 32 of 2019 was made under the Exchange Control Act, which gives the President power to make regulations relating directly or indirectly to gold, currency, securities, exchange transactions, as well as the control of imports and exports, transfers and settlements of property, payments, and transactions in relation to debts.  In short, the President can make regulations under the Act controlling virtually the entire economy of Zimbabwe.  This Act is clearly a case of Parliament delegating its primary law-making power in contravention of section 134 of the Constitution, and no attempt is made to limit the power or to specify the principles and standards applicable to the regulations.  After the Constitution came into force the Act should have been repealed and replaced with a constitutionally compliant Act.

SI 33 of 2019 was made under the Presidential Powers (Temporary Measures) Act, which gives the President even wider power to make regulations:  if situations arise that need to be dealt with urgently, the President is empowered to make regulations providing for “any matter or thing for which Parliament can make provision in an Act”.  In other words, under this Act, the President has the same law-making power as Parliament.  His regulations last for only six months, but nonetheless Parliament has clearly delegated its primary law-making power to the President, this is unconstitutional even if the President’s regulations are only temporary.

Both the statutory instruments, therefore, were made under Acts which are arguably unconstitutional.  If the Acts are unconstitutional then they and the instruments are void, and the monetary policy remains just a policy with no legislation to back it up.

But even if the two instruments were legally valid, it is doubtful if they succeed in implementing the Governor’s monetary policy in at least four respects:

1.  Use of RTGS Dollars for All Transactions

In his Monetary Policy Statement the Governor said:

“The RTGS dollars shall be used by all entities (including government) and individuals in Zimbabwe for the purposes of pricing of goods and services, record[ing] debts, accounting and settlement of domestic transactions.”

This is repeated almost word for word in paragraph 2.3 of the Reserve Bank’s Directive RU 28/2019.

The two statutory instruments (32 and 33 of 2019) contain provisions that seem to have been designed to implement this measure:

  • SI 32 of 2019 defines the word “currency” as including the new RTGS dollars in their electronic and bond-note form.  So whatever their origin and form, the RTGS dollars must be regarded as real Zimbabwean money for the purposes of exchange control.
  • SI 33 of 2019 (made under the Presidential Powers Act) adds a new section 44C to the Reserve Bank of Zimbabwe Act under which the Minister of Finance can authorise the Reserve Bank to issue electronic currency and specify its exchange rate with any other currency.  The SI goes on to state that the Minister is deemed to have authorised the Reserve Bank to issue RTGS dollars which are “lawful tender”, and to have specified that existing electronic balances in bank accounts (other than Nostro accounts) are deemed to be in the new RTGS dollars.

In summary these provisions say that RTGS dollars are currency and that they are legal tender.  Neither statutory instrument goes further to say that RTGS dollars must be used for pricing, recording debts, accounting and settlement of transactions.  That is important because the fact that a currency is legal tender does not mean that it must be used for all purposes.

“Legal tender” means a currency which, if offered in payment of a debt, discharges the debt unless the creditor and the debtor have specifically agreed otherwise.  So if a debtor owes a creditor $20, say, the debtor can normally repay the debt by offering $20 in RTGS dollars (because they are legal tender).  If however the parties have agreed that the debt should be repaid in US dollars, then the debtor must repay it in those dollars.  There is no law in Zimbabwe which invalidates a contract that stipulates payment in a foreign currency.  Similarly there is no law in Zimbabwe that requires prices to be marked up in legal tender or accounts to be drawn up in legal tender.

Even though the Reserve Bank’s directive repeats the Governor’s statement about the compulsory use of RTGS dollars, the directive is not a generally binding law.  Directives issued by the Reserve Bank become binding only if they are published in the Gazette or if they are served on the persons to whom they apply, or if it is proved that the persons concerned actually knew about them [see section 39 of the Exchange Control Regulations, 1996].  Although this directive seems to have circulated on social media it has not been published in the Gazette nor has it been served on all traders, accountants and other people who are presumably expected to abide by it.  Hence the directive is not binding on them.  In so far as the directive purports to compel everyone to use RTGS dollars exclusively, therefore, it is generally ineffective.

A further point is that in 2009 British pounds, Euros, U.S. Dollars, S.A. Rands and Botswana Pulas were declared to be legal tender in Zimbabwe [see section 17(2) of the Finance (No. 2) Act, 2009, No. 5 of 2009] and that declaration has not been revoked.  Those currencies remain legal tender therefore and can be used interchangeably with RTGS dollars for all the purposes mentioned by the Governor.  Neither the Governor’s monetary policy statement nor SIs 32 or 33 of 2019, nor the Reserve Bank’s directive, alter that.

2.  Multi-Tier Pricing

In his monetary policy statement the Governor said:

“The use of RTGS dollars for domestic transactions will eliminate the existence of the multi-pricing system and charging of goods and services in foreign currency within the domestic economy.”

If he meant that market forces would compel sellers to stop pricing in foreign currency because everyone is using RTGS dollars, then he may be right – though prices are still being fixed in US dollars so he may in fact be wrong.  But if he meant that legally sellers will not be allowed to continue fixing prices in foreign currency, then he was certainly wrong.

Just as there is no law invalidating tenders of payment in foreign currency, so there is no law that outlaws multi-tier pricing, i.e. the fixing of different prices for goods according to the currency in which payment is made.  A seller is entitled to stipulate that he will accept only US dollars or any other currency for his wares, and buyers have no legal ground for complaint – if they don’t like the price they must go elsewhere.  And anyway, as already pointed out, US dollars are still legal tender in Zimbabwe.

3.  Cancellation of Licences of Bureaux de Change

To give effect to the Governor’s monetary policy statement, the Reserve Bank’s directive announced the cancellation of all existing bureaux de change licences.  Paragraph 9.3 of the directive reads:

“In order to, therefore, align the existing operational Bureau de Change licences to the Monetary Policy announcement, all current Bureau de Change licences registered under Tier 3 of the Authorised Dealers with Limited Authority have been cancelled to allow re-registration and issuance of new licences in line with the new Bureau de Change Guidelines.”

The paragraph is a bit confusing.  Bureaux de change are registered by the Reserve Bank in terms of the Exchange Control (Authorised Dealers with Limited Authority) Order, 2015.  Once they have been registered under the Order, they must get an annual licence for each office from which they conduct business.  So what the directive seems to mean is that the Reserve Bank has cancelled the registration of all bureaux de change, as well as their licences, to allow them to be re-registered in accordance with the new monetary policy.

The cancellation of any registration or licence is a serious matter and can only be done if the registered person or licensee consents, or if a law permits the cancellation.

Bureaux de change may have consented to the cancellation of their registration, and if they have done so freely and with full knowledge of their rights there is no problem.  But if they have not so consented then there may be a problem because there is no law that allows the Reserve Bank to cancel their registration simply because of a change in policy.  Section 7 of the 2015 Order under which bureaux are registered does envisage cancellation of a bureau’s registration but only for fault or default on the bureau’s part.

4.  Discontinuation of Incentive Schemes

A similar problem may arise in relation to paragraph 7.1 of the Reserve Bank directive, which states:

“In line with the new administrative arrangements … the Export Incentive Scheme, the Diaspora Remittance Incentive Scheme (DRIS) as well as export incentives that were being accessed by gold producers, cotton and tobacco growers, macadamia growers and horticultural producers, have been removed with effect from 21 February 2019.”

All these incentive schemes were cancelled [which is presumably what “removed” is supposed to mean] the day after the Governor gave his monetary policy statement –virtually without notice, in fact.

Whether incentive schemes like those mentioned in the directive can be cancelled without notice depends mainly on whether they amount to contracts between the government and the persons to whom the incentives are offered.

  • If they are contracts – and courts have held that such schemes are sometimes contracts – then the government can cancel them only in accordance with contractual conditions impliedly agreed between the parties.
  • If they are not contracts then they usually can be cancelled, though the law often requires beneficiaries of the schemes to be notified in advance and invited to make representations about the cancellation.  In such cases beneficiaries are regarded as having a “legitimate expectation” that their schemes will continue.

Veritas has not seen the conditions of the incentive schemes so we cannot comment on the validity of the cancellations, but we do hope the government and the Reserve Bank took competent legal advice before announcing the cancellations.


To summarise the legal issues covered in this Bill Watch:

  1. The statutory instruments issued to give effect to the new monetary policy may not be valid.  The government should act quickly to put the policy on a firmer legal foundation, preferably through an Act of Parliament.
  2. There is currently no legal way to make everyone in Zimbabwe use the new RTGS dollars for all purposes.
  3. Multi-tier pricing is and remains perfectly legal.
  4. The registration of bureaux de change cannot be canceled merely because the Reserve Bank has changed its policy.
  5. The cancellation of export incentive schemes may be illegal.

All these issues suggest that while the government and the Reserve Bank may have expended a great deal of time and thought in constructing the new monetary policy, perhaps they should have paid more attention to the policy’s legal aspects.

One final point is that the task of assessing the legal implications of the new policy is made more difficult by the large number of exchange control instruments – regulations, orders and directives – which remain on the statute book long after the policies they implement have been abandoned.  The government and the Reserve Bank should remember that statutory instruments do not simply vanish when policies change:  they remain in force until they are repealed, and if they are inconsistent with the new policies they may operate to subvert them.

We urge the government and the Reserve Bank therefore to go through all the existing exchange control legislation, repeal whatever is outdated or unconstitutional and then re-enact whatever needs to be kept.

At the moment there is legislative confusion.



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