- PMR has shoot to ZWL1750 from ZWL1500 last week
- ZWL traded at ZWL944.7 on formal market
- Premium between two markets has widened by 46%
Harare- The embattled Zimbabwe dollar crossed the ZWL1700 mark on the 4th of April 2023 on the parallel market to ZWL1750 against a single greenback, almost doubling the formal market rate.
On the latest auction market held on the 4th of April 2023, the Zimbabwe dollar traded at ZWL944.7133 from ZWL928.5887 during the prior week, a 2% weekly decline but far behind the black market rate where economic forces determines the performance.
The latest boom of the Zimbabwe dollar on the parallel market, almost doubling that of the formal market has widened the premium between the two markets by 46%, eroding the consumers’ hard-earned currency at a faster rate.
This reduces consumer purchasing power which ultimately affects corporates through curtailed sales volumes.
The rapid depreciation of the local currency and a flourishing black market presents a headache for exporters who relinquish 25% of their foreign currency to the RBZ in exchange for the Zimbabwe dollar which is overvalued and yet, suppliers quote the parallel market rate when selling raw materials.
This inflates production costs and dampens productivity as corporates are getting almost half of the value they surrender to RBZ and pay more to suppliers who use the PMR.
The Zimbabwe dollar is suffering from a confidence crisis. There is a huge confidence deficit in both the embattled currency and the monetary gaffers. Policy inconsistencies from RBZ and the finance ministry are leading the ailing currency to a grave.
For example, continued flourishment of the PMR signifies high demand for the US dollar and this is relative to the high liquidity of ZWL currency in the market, despite RBZ vowing to maintain a consistently tight quarterly reserve money policy. RBZ is not sleeping, it is busy pumping more money into the market.
Another aggressive policy is taking the 25% of exporters’ foreign currency in exchange for worthless notes. Instead of taking foreign currency to exporters, RBZ should promote export-oriented productivity in the economy, where they can pay incentives to foreign currency earners, especially farmers and entrepreneurs.
The failure of the Mosi a Tunya gold coins to resolve the currency crisis was primarily due to half-baked policymaking and a confidence deficit in the Zimbabwe dollar. The gold coins are elitist as they are highly accessed by the business moguls and politicians who earn more than ZWL1 million against the commoners who earn less than ZWL500 thousand.
On the 4th of April 2023, the gold coin was valued at ZWL2.1 million and no commoner is earning thus far.
To restore currency stability, there is a need to build sound economic fundamentals that support productivity and exports.
The taxation system in Zimbabwe is usurious, from Aids levy to corporate tax, and customs duty. This deprives productivity as companies spend more money on taxes than production. Government should consider incentivising exporters than bullying exporters through taxes.
Even if the government considers bullionism today where precious minerals like gold and diamond are used to back up the Zimbabwe dollar, due to the confidence deficit in the Zimbabwe dollar, behavioural economics will weigh on the policy.
The Zimbabwe dollar has failed and it will continue failing. As the election period nears, more Zimbabwe dollars will be poured into the market to fund government suppliers, thus, causing more traffic on the US dollars.
Government should consider dollarisation to instil stability and confidence in the economy.
The economic fundamentals are out of order, hence, no policy change is capable of resuscitating the dire currency. Redollarisation is the only immediate solution.
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