Zimbabwe looks at yet another plan to rescue sinking local currency

Zimbabwe is considering overhauling its exchange-rate regime as the government seeks new measures to save its beleaguered currency.

Source: Zimbabwe looks at yet another plan to rescue sinking local currency | Business

Zimbabwean flag

Zimbabwean flag
David Peterson/Pixabay

Zimbabwe is considering overhauling its exchange-rate regime as the government seeks new measures to save its beleaguered currency.The latest proposals will be in a monetary policy statement the Reserve Bank of Zimbabwe and Treasury are jointly working on, according to Governor John Mangudya. Zimbabwean President Emmerson Mnangagwa on Tuesday signaled a revamp, following the local dollar’s decline. A date is yet to be announced for the release of the statement.

Options being studied by working groups from the central bank and Treasury include scrapping a weekly foreign-currency auction started in 2020, shifting the mandatory 25% surrender requirement for exporters to the interbank system rather than the central bank and allowing lenders to set a market-reflective exchange rate, according to two people familiar with the plans.

Everything is on the table at the moment, with the incoming Governor John Mushayavanhu also involved in deliberations, they said, declining to be identified as the talks aren’t public.

The unit has slumped more than 40% against the dollar this year after plunging 90% in 2023, making it the world’s worst-performing currency over the period. The depreciation underpins the economic hardships in the southern African nation of around 16 million people and evokes memories of the currency collapse and hyperinflation of the late 2000s sparked by a political and economic crisis.

The Zimbabwe dollar was trading officially at around 11,000 to the greenback on Wednesday, and at 15,600 on the parallel market, according to ZimPriceCheck.com.

A raft of policy measures by the economic clusters will “arrest price increases, stabilize the currency and encourage savings,” Mnangagwa said on Tuesday, without providing further details.

Mnangagwa’s comments were meant to provide “forward guidance” on the thrust of the policy statement, according to Mangudya.

“It’s a great reassurance that the president would like to see durable stability of prices and the exchange rate in the economy,” the central bank chief said in response to questions sent by text message. He declined to comment on the proposals being discussed.

The authorities have repeatedly tried to rescue the Zimbabwe dollar since its reintroduction in 2019, after it was scrapped a decade ago when hyperinflation erased its value.

Previous measures included introducing gold coins, as well as bullion-backed digital tokens known as ZiG, but both failed to end the slide. The central bank’s key interest rate is at 130%, the world’s highest.

The US dollar is in high demand and dominates 80% of transactions. Inflation is accelerating, despite the government adopting a new price gauge to account for use of the US currency. Inflation was 34.8% in January.

The underlying problem is the local dollar remains overvalued and continues to be controlled by the central bank, according to Shelton Sibanda, the chief investment officer at Imara Asset Management.

“We must move away from a managed exchange rate,” he said. “As long as there is this reluctance and distrust from government of floating the exchange rate, no new currency nor measures will work.”

COMMENTS

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    dubonus 3 weeks ago

    Whatever they try and conjure up, the Z$ is effectively worthless, for obvious reasons – corruption & totally incompetent Government.