• The Zimbabwe dollar crashed by 14% on the latest auction market
• This was the biggest crash in 2023 and since March 2022
• Zimbabwe dollar lastly recorded a big crash of 33% within a week

Harare- Embattled Zimbabwe dollar recorded its worst weekly performance on the 16th of May 2023 after depreciating by a record 14% against a single greenback on the RBZ-governed Auction Market. The Auction Market was introduced in June 2020 by the Central Bank in a bid to anchor Zimbabwe dollar performance through availing foreign currency to companies.

This was the biggest crash in 2023 since it fell by a record 33% on the 17th of May 2022 when it depreciated from ZWL173 to ZWL258 within seven days. The latest is a record low in 2023 and the second record low since the auction market commenced in June 2020. 

The Zimbabwe dollar traded at ZWL1404.8039 from ZWL1212.5448, widening year-to-date losses by 52%, a record decline since the Zimbabwe dollar was re-introduced in 2019. 

The record decline comes amid a chunk of economic measures implemented by the Treasury and Central Bank to stabilise the economy and the ailing currency at large. This shows that since 2019, what government is doing to stabilise the ailing currency is just putting old wine in new bottles. Nothing concrete has been done to build economic fundamentals key for currency performance. The problem with the monetary gaffers is that they are curing the symptoms while giving a deaf ear to the root cause of the problem.

Since July 25th 2022, the government has been implementing both dovish and aggressive economic policies to resuscitate the dire currency. The 25th of July 2022 saw the debut of gold coins in the market while the bank policy rates spiked to a global record high of 200%. The bank policy rates were reviewed in 2023 to 140% in March to curtail speculative borrowing. But, the rapid depreciation of the local currency is speaking otherwise as far as the tight monetary policy is concerned.

The latest crash comes after the Central Bank introduced gold-backed digital tokens on the 28th of April 2023 and the Treasury passed a busload of economic measures on the 11th of May this month. 

Despite a toxic political and economic environment that is suffocating investments key for currency stability, the Zimbabwe dollar is also suffering from regressive polices and policy inconsistency. For example, a record decline both on parallel market and official market shows that the government is printing more money against the few US dollars in the market causing the rate to spike. This is against government’s tight monetary policy which has seen the bank policy rates spiked to 140%.

Against adamance to reform politically and economically, there is no need to continue putting measures to stabilise an untrusted currency. Rather, adoption of a trusted currency like the US dollar will be the best alternative.

The continued decline of the Zimbabwe dollar is an indication of failed economic policies where the government is trying to perform a miracle to resuscitate a dead currency. The Zimbabwe dollar has been rejected in the market with listed companies reporting a divergence from ZWL sales to US dollar sales. 

Its decline against stabilising measures is indicative that the government is stitching the anus to stop diarrhoea, it is scratching where it is not itching. The Zimbabwe dollar is suffering from behavioural economics due to a confidence deficit in the currency and economic gaffers themselves and to restore confidence, issues like power outages, high import bill, lack of proper investments, corruption, an ailing industry, high unemployment, lack of property rights and lack of transparency and rule of law at large need to be given prominence.

From an economic point of view, it is hard to build sound economic fundamentals with a currency that the people do not have faith in. With the economic crash of 2008, the Zimbabwe dollar only debuted into the market in 2014 in the form of bond coins after five solid years of dollarisation. To improve infrastructure development, industrial efficacy and high productivity, there is a need for the business to use a currency that does not inflate production costs through exchange losses and inflationary pressures like the Zimbabwe dollar. 

It is hard for companies to invest, and increase production and productivity when they are losing 50% of their foreign currency value to the RBZ through the 25% retention threshold. Instead of incentivising exporters, the RBZ is robbing the exporters through giving them the Zimbabwe dollar.

This makes the policies being passed by the government since the reintroduced of the Zimbabwe dollar old wine in new bottles. Nothing has changed. Government is reluctant to address issues to do with property rights, corruption, rule of law to dampen confidence deficit and increase productivity. Instead, it is leading in a wrong race where there is no medal. 

For example, the latest measure which saw the removal of duty on basic goods will not do anything to the Zimbabwe economy and Zimbabwe dollar at large. It will downsize Zimbabwe’s economy and make Zimbabwe the supermarket of South Africa’s goods. It’s a policy that benefits South Africa’s producers more than our own.

The Zimbabwe dollar does not need a cocktail of measures to stabilise it, as it is difficult to stabilise something that no longer exists and which suffers more from a confidence deficit. There is a need to address key issues from political and economic to build sound economic fundamentals, however, that cannot be done while the rejected currency is in use. 

There is a need to completely dump the local currency for the short term and dollarise to bring confidence and stability. It is during dollarisation that the government can address these key issues before reintroducing the Zimbabwe dollar.

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