- ZWL depreciated by 2% to ZWL907.9236
- Year-to-Date losses have surpassed 25%
- Year-0n-Year losses have breached 85%
Harare- Embattled local currency, the Zimbabwe dollar has depreciated by 2% on the latest RBZ-governed Auction Market held on the 7th of March 2023. The Zimbabwe dollar tumbled by 2%, edging closer to US$1: ZWL1000 after closing the trading session at ZWL907.9236 from ZWL892.6349 in the prior week.
A closer analysis of the auction market movement shows that instead of stabilising the parallel market rate, the auction market is pacing up to the parallel market rate. On the parallel market, the Zimbabwe dollar is currently trading at ZWL1250 against the single greenback.
The continued disparity between the auction market rate and the parallel market rate shows that the auction market cannot sustain the availing of foreign currencyon its own. The two markets are complementary in cushioning the business community with foreign currency.
However, the continued rapid decline of the Zimbabwe dollar is a disincentive for the exporters who relinquish 25% of their foreign currency proceeds to the RBZ for the Zimbabwe dollar on the prevailing auction market rate. This means companies are surrendering more than they get back.
On a year-on-year basis, the ZWL has depreciated by 86% while since the auction market commenced in June 2020, the Zimbabwe dollar has lost ground against the US dollar by 94%.
Upon gaining independence in 1980, the Zimbabwe dollar was valued at about 25% higher than the U.S. dollar. However, corruption, mismanagement of the economy, and sanctions have played down the efficiency of the currency.
For a currency to swim and not sink, it should be backed by sound economic fundamentals. Economic fundamentals refer to a set of key economic parameters that have to be achieved to set the economy on a sustainable and stable positive growth trajectory.
Economic fundamentals entail a viable industry that helps in reducing the importation bill and increase exports to generate more foreign currency, a conducive operating environment where the tax regime and policies are less hawkish and consistent.
Due to policy slippages and reactionary economic policies, authorities are cognisant that there is a serious confidence deficit in the Zimbabwe dollar. This is further exacerbated by the yester years experience of a hyperinflationary environment.
Confidence, although qualitative, is a key aspect to achieving sound fundamentals and more eminently supporting the exchange rate which plays a crucial role in currency stability.
However, the long-term issue is how to build confidence in the Zimbabwe dollar. It means getting the politics right, economic policies right, solving the debt crisis and addressing risk perception.
There is a need to create a stable, conducive economic and political environment, policies that, however, do not exist currently.
Judging by that, dollarisation amid a 70% local expenditure in US dollars is the solution to have and maintain stability, fiscal discipline and confidence while building fundamentals step by step.
There is a need to correct behavioural economics through efficient and consistent policing that is more dovish and proactive than hawkish and reactionary.
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