- Zimbabwe dollar traded at ZWL959 on the latest auction market against the greenback
- This was against ZWL1800 on the parallel market
- Policy slippages ahead of elections are contributing more to the demise of the ailing currency
Harare- The Zimbabwe dollar continues losing more ground against the greenback after hitting ZWL959.3111 against the US dollar on the 11th of April 2023. That took year-to-date losses to 30%. Year-on-year losses have widened by 85%, a record loss since the Zimbabwe dollar was reintroduced in 2019.
The latest performance of the Zimbabwe dollar is against ZWL1750-ZWL1800 fetched for a single greenback on the parallel market, a market-determined by economic forces, a market that is a reflection of true Zimbabwe dollar performance.
This means the auction market rate is almost being doubled by the parallel market rate, a major blow to the general populace who wages are in real-time gross settlement (RTGS) and then purchases the US dollars on the black market where they are accessible.
The same pain is felt by the exporters who relinquish 25% of their foreign proceeds to the RBZ for the Zimbabwe dollar as a retention threshold.
Suppliers and retailers sell their products in US dollars and when they are selling in Zimbabwe dollars, they quote the parallel market rate, which doubles the official market rate used by the government and employers. This means corporates and consumers are losing half-value of their proceeds.
This disincentive leads to production cuts and losses to exporters due to a lack of sufficient foreign currency to import key raw materials and to employ alternative power sources amid erratic power supplies by the power utility, ZESA Holdings.
A rapidly depreciating Zimbabwe dollar that is also overvalued broadly undermines the scope for maximising structural efficiency and the growth of both the export industry and import substitution.
The continued rapid depreciation of the local currency is further a reflection of the easing of monetary policies ahead of the 2023 general elections. In 2022 when the bank policy rate was at 200%, the flourishing black-market rate found a breather as Zimbabwe dollar liquidity was dampened. This was through curtailing speculative borrowing which dampened arbitrage opportunities in the streets.
The Zimbabwe dollar was reintroduced as the only legal tender in 2019, pegged 1:1 with the United State dollar. However, since then, the currency has been plunging against the ‘King Dollar’ due to a confidence deficit. For a currency to swim, 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. They entail a viable manufacturing industry that is key in creating employment, and bringing foreign currency to the country, narrowing a negative trade balance and ensuring surplus.
However, the long-term issue is how to build confidence in the Zimbabwe dollar. It means getting the politics right, economic policies right and addressing risk perception. There is a need to create a stable, conducive economic and political environment, things however, that 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.
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