Zimbabwe Suspends Fungibility Of Shares To Control Exchange

Mthuli Ncube

Zimbabwe Suspends Fungibility Of Shares

Zimbabwe Suspends Fungibility Of Shares To Control Exchange Rate
Mthuli Ncube, Zimbabwe’s finance minister, suspends fungibility of shares  [Photographer: Cynthia R Matonhodze/Bloomberg]

Minister of Finance and Economic Development Mthuli Ncube has suspended the fungibility of dual-listed shares in an effort to control Zimbabwe’s exchange rate which has been skyrocketing out of control of late. The suspension of the fungibility of the shares will last for a period of twelve months.

This was announced through a General Notice in an extraordinary Government Gazette released published on Sunday 15 March 2020. The suspension of fungibility applies to Old Mutual, PPC and Seedco International.

According to Zimbollar, fungibility refers to

If Company A is listed on more than one stock exchanges, shareholders are able to transfer shares across the stock exchanges in which it is listed. The process assumes that the share should have one price across(Law of One price or Purchasing Power Parity)

However, due to exchange rate disparities, investors can make an arbitrage (riskless) profit by buying and selling the same share across different stock exchanges.

This means that investors will no longer be able to transfer the shares of these countries across stock exchanges. In the past, investors could repatriate earnings by buying shares on the ZSE and selling them abroad.

The prices of the shares of Old Mutual on the London Stock Exchange (LSE) and on the Zimbabwe Stock Exchange (ZSE) also allowed investors to get an approximation of the true exchange rate through the use of the Old Mutual Implied Rate (OMIR).

The move seems to be an attempt to smother the Old Mutual Implied Rate.

A source who spoke to online publication, The Anchor, explained

“We are determined to control month on month inflation and contain it within a lower single digits levels of and in fact we may wish to see it turn negative in the next month or two and we will, therefore, sustain the policy momentum.”

“This measure is one of many measures we are now determined to implement to bring lasting stability to the currency.”

Zimbabwe Suspends Fungibility of shares

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