• The Zimbabwe dollar traded at ZWL5.9 thousand against the US dollar
• This was a 38% decline from ZWL3.6 thousand last week
• Month-to-date losses have widened by 57%
• Year-to-date losses have widened by 89%
• Year-on-year losses have hit a new record low of 94.3%

Harare- The embattled local currency, the Zimbabwe dollar has depreciated by 38% against the greenback, a record low since the currency was reintroduced in 2019. A record depreciation was lastly recorded in May 2022 when the local unit shed 33% against the dollar.

The Zimbabwe dollar traded at a wholesale weighed average rate of 5 978.6794 narrowing the premium to 20%. The parallel market rate moved marginally from 7000 against a dollar last week, to 7500 this week.

Since the government liberated the exchange rate, the formal market rate has been flowing at an unanticipated pace, tracking its natural mark.

The latest decline widens month-to-date losses by 57% and year-to-date losses by 89% with year-on-year losses hitting a record low of 94.3%.

With export surrender portions in place, a rapid currency depreciation every week poses a great disadvantage to exporters.

The government has been passing a raft of measures, with 2023 holding the most number of measures to stabilise the currency since its inception.

However, most of them are yet to show any significance as a roar in formal market rate means continued price madness in the Zimbabwe dollar terms.

One of the major problems the currency is facing is the confidence deficit. The market has lost confidence in its currency making it hard to gain any stability. The people have also lost trust and goodwill in the Treasury and Central Bank, hence, hugely affecting stability measures by behavioural economics.

When the market has lost confidence in its own currency and fiscal authorities, this means it will not also trust any measure put upon for stability purposes.

Therefore, under such circumstances, a stable alternative currency should be introduced as a base currency and in Zimbabwe’s case, the United States dollar. Even if the government is adamant about dollarisation, the economy has already dollarised itself with 78% of local transactions being carried in US dollars.

Secondly, the government need to scrap the auction system and the surrender requirements to increase productivity and exports in the country. Though the Central Bank liberalised the auction system on the 6th of June 2023, the rate still trails the parallel market rate. An overvalued Zimbabwe dollar broadly undermines the scope for maximising structural efficiency and the growth of both the export industry and import substitution.  The government needs to 100% float the Zimbabwe dollar and allow it to find its natural mark and remove the fiction of the interbank rate.

Scrapping the surrender portions (currently at 25% for exporters) and floating the local currency to find its course will not only boost confidence in the authorities but the Zimbabwe dollar as well. Dictated economics died a long time ago. However, after scrapping surrender taxes, the authorities have to encourage exporters to bank at least 70% or more of their export proceeds. This will eliminate pressure on the parallel market and stabilise the exchange rate which is key in unlocking the Zimbabwe dollar stability.

I have explained more of the measures needed to be adopted to have currency stability in The Axis, our Weekly e-Paper with the article caring the Headline Gvt’s Economic Gamble. To get that and more insights, please subscribe to our e-paper and enjoy unparallel economic news and business analysis.

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