Speculation on the return of the Zimbabwe dollar drove forex rates to near record highs as Zimbabweans anticipate its crush. It does not need excessive economic theory to appreciate that ordinary Zimbabweans are still hounded by the 2008 crush of the Zim dollar, which then ushered the multi-currency regime. Zimbabweans are skeptical of the currency’s return, especially at a time when the Bond note and the RTGS have received a heavy bartering against the USD.

Parallel exchange rates tumbled to 1:4 on Monday up from 1:3.4 at the close of the prior week as rumors swell that Zim dollar return is imminent.

Two things have heightened the speculation primary being the delay in the release of the monetary policy which was previously targeted for the end of January. Given the prevailing weak fundamentals currency reforms are seen as a top priority by most Zimbabweans including the Business community.

Some have called for the return of the USD in order to foster a return of stability to the markets and help contain inflation which, over the past few months has risen sharply.

Government is however of the view that redollarisation is a past phase. The minister of Finance believes the USD was part of the causative of Zimbabwe’s present misfortunes especially on export competitiveness side. He has said the Zimdollar will return within 12 months.

So against the delay in the pronouncement of the policy, and recent utterances by the minister of Finance, speculation has soared. Unverified sources say the delay in the MPS is due to a rift between the finance minister and the RBZ governor. It was reported in the independent newspaper last week that RBZ governor favours the status quo of a 1:1 exchange rate and not the introduction of Zim dollar. The minister is reported as favouring a Zimdollar return.

However a closer look at the power matrix in Zimbabwe shows that there are certain powers influencing policy beyond these esteemed gentlemen.

In a analysis piece last week, Equity Axis highlighted the scenarios at stake and the possible impact of adopting each. An immediate return of the Zimdollar without controls will result in crushing of the currency despite that the bond has shown stability to the USD for the greater part of the festive season to date.

Introduction of curency means replacing bond notes by a certain exchange rate and assuming that bond note is denominated in USD , a rate close to the average USD/ bond note rate will be preferred. Assuming that the rate is 1:3 it means 3 new Zimdollar notes will be issued in favour of 1 bond note. This will significantly inflate money supply, result in a sharp plunge of the exchange rate.

A managed exchange which follows that the local currency is not equivalent to the USD and discounted for certain market dynamics and historical considerations, may cushion a currency plunge.

It remains to be seen which route the government takes but in the court of public perception government will have to do more before introducing a local currency.

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