With the persisting currency crisis, public service workers are at crossroads with the government. Nurses and teachers started a strike this week on Monday against low salaries and poor working conditions. Some have been seen holding placards written: “Called to Serve, Not to Suffer.”

High demand for the US dollar kept the Zimbabwe dollar under pressure, as the local currency registered yet another 4 percent decline, closing at 352 in the weekly foreign currency auction on Tuesday.

This compares to 338 traded last week.

The troubled currency which has failed to attract confidence – a key characteristic of sound money, has depreciated by nearly 500 percent against the US dollar since the inception of the auction market in 2020 whilst this year’s losses alone are above 200 percent.

On the interbank market, the currency was quoted at 365 on Tuesday, whilst it is now hovering in the region of 700 at the parallel market rate, all in all, reflecting that the country is indeed facing a currency crisis.

The Zimdollar has been under pressure since the authorities moved to end dollarisation which was adopted in 2009 after the complete fall of the local currency. Despite being cautioned on the absence of strong economic fundamentals to support the local currency such as single-digit inflation, current account surplus, and at least six months of import cover, that is, US$3 billion foreign currency reserves, the government in June 2019 went as far as banning the use of foreign currencies and established the Zimdollar as the sole legal currency. That policy misdirection failed as it was doomed to from the start.

The country is now using multiple exchange rates for one commodity, that is, foreign currency.

“This creates room for massive arbitrage opportunities and rent-seeking activities – reinforcing a casino economy where the main business in town becomes currency trading as opposed to production,” renowned economist, Professor Gift Mugano said in his May 2022 report titled “Unpacking the Currency and Exchange Rate Dynamics in Zimbabwe and Future Outlook”.

The introduction of the auction market and the interbank market has failed to serve the intended purpose, which is discouraging activity on the black market for foreign currency. Instead, the auction market has been failing to meet the demand for foreign currency exposing the government of a lack of adequate forex as shown through backlogs on allotted funds.

Meanwhile, the restrictions on the amount of money that can be traded on the Interbank market impede it from playing its role as a platform for true price discovery and converging of the exchange rate with the black market nor with the auction rate.

Professor Mugano warned that the Interbank market will not be as effective as the government intended, as he cited the restrictions that come with it.

“Businesses will not comply with the requirement to use the Interbank market since it will be far below the parallel market rate, for example, on 13 May 2022 the interbank market rate was ZWL$280/US$1 while the black-market rate was around ZWL$450/US$1,” he said at the time.

The government has been placing the blame for the failure of its policies on alleged economic saboteurs whilst insisting fundamentals are in place to support economic growth. The Minister of Finance, Professor Mthuli Ncube recently went as far as declaring that there is no crisis in Zimbabwe.  But, as the market dictates show, the local currency has remained highly volatile and inflation is becoming uncontrollable.

Inflation is also skyrocketing in the country and reached 132 percent in May. The outlook is even gloomier triggering fears of a return to the 2008 era of hyperinflation where all local currency savings were totally wiped out.

Economic consensus stipulates that raising interest rates brings down inflation and helps currencies appreciate. But this has not helped in Zimbabwe. The country has the world’s highest interest rate at 80 percent which was hiked from another global high of 60 percent.

Analysts and market experts say the Zimdollar will remain under pressure as demand for the greenback continues to soar as a preferred store of value. A widening trade deficit, declining foreign direct investment, and political instability are some of the factors that continue to weigh on the local currency’s outlook.

With the persisting currency crisis, public service workers are at crossroads with the government. Nurses and teachers started a strike this week on Monday against low salaries and poor working conditions. Some have been seen holding placards written: “Called to Serve, Not to Suffer.”

They rejected a 100 percent ZWL salary hike and are demanding to be paid in US dollars, but the government is reluctant to meet those demands.

Reserve Bank Governor Dr. John Mangudya added petrol to the fire last week. Speaking during a heated Political Actors Dialogue currency indaba in Harare, Mangudya said: “You want to be paid in foreign currency, did you put your US dollar in the bank?”

“Whose money do you want to take? Do you want to take Mimosa or Zimplats money?” Mangudya said, ruling out US dollar salaries for civil servants.

His compatriot in the Ministry of Finance, Mthuli Ncube has however adopted a warm tone in the wake of the ongoing strike which has left patients unattended to at public medical centres.

Speaking during a post-cabinet media briefing on Tuesday, he said the government has not ruled out payment of salaries in US dollars, but could not further comment on the ongoing discussions with the workers' representative unions. He pointed to the US$175 allowances as an indication of the government’s willingness to meet the needs of its workers.

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