- Zim dollar appreciated to ZWL4.9k this week
- This was a 9% appreciation
- However, the PMR is failing to respond
Harare- The Zimbabwe dollar has sustained a recovery trend, firming to ZWL4998.8352 in the latest auction market held on July 11, 2023, with an 8% week-to-date increase. This marks one of the strongest performances against the greenback since the liberalised interbank was introduced.
However, the premium has widened to 46%, with the Zimbabwe dollar continuing to trade at ZWL9000 on the parallel market and ZWL8500 on the P2P markets. The underlying question is if the appreciation is determined by market forces, why is the parallel market rate, and prices in Zimbabwe dollars not responding? This question will be answered in the article.
The number of bids for the week remained stagnant at 10 and non were disqualified. However, allotted money marginally increased to US$5.6 million from US$5.5 million last week. In the current week, RBZ set US$20 million and approximately a quarter was taken up.
Demand for forex has been declining week in and week out, but the question is does this mean the country is now liquid (declining demand) or tightening the Zimbabwe dollar by the government (declining supply).
The country has self-dollarised with over 70% of local transactions in US dollars. This has lessened demand for the US dollar as companies can liquidate themselves through local transactions. This has caused some sort of ZWL appreciation.
However, despite the Zimbabwe dollar's recent appreciation, there are concerns that the government's policies are creating an artificial shortage of currency. Of course, governement is credited for tightening money supply and dovish policies like digital gold backed tokens which are mopping up excess liquidity.
The question is when the RBZ was still printing the 25% surrender portions, the country was liquid with the RTGS but when Treasury took over, there was a complete change in liquidity.
What it means is that the government is paying exporters 75% forex but is withholding the 25% in local currency component, thus, creating a false shortage.
Also, the government has delayed paying its suppliers’ Zimbabwe dollar component creating an artificial deficit of the Zimbabwe dollar.
The moment the government starts to enforce these payments, the Zimbabwe dollar will start to plunge, thus, the current appreciation is fake stability meant for the short-term.
This is causing the parallel market rate to remain stagnant at ZWL9000 while the formal rate has firmed to ZWL4.9k. if the country is so liquid in US dollars, why is the parallel market not responding?
Despite that, this is also making suppliers and retailers to remain cautious in changing Zimbabwe dollar prices in response to the formal market rate movements. Many retailers, including big names, are still using the ZWL10k rate even far beyond the parallel market rate in fear of a possible Zimbabwe dollar plunge. This speaks a lot to the so-called appreciation.
This suggests that the appreciation may be driven by artificial factors rather than actual market forces. If the appreciation were genuine, the parallel market rate should have depreciated, but this is not happening.
Therefore, while the Zimbabwe dollar's recent appreciation is a positive development, it appears to be driven by artificial factors rather than actual market demand. Delayed payments to suppliers and exporters, as well as continued price increases in Zimbabwe dollars, suggest that the scarcity of Zimbabwe dollars is not being addressed by the government's policies.
The failure of the parallel market rate to depreciate in response to the appreciation raises questions about the authenticity of the currency's recent gains.
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