The Zimdollar started melting down two weeks ago, and it’s getting worse.
Harare, Zimbabwe – The Zimbabwean dollar is collapsing against the United States dollar on the country’s black market, as confidence in the local currency hits rock bottom.
The Zimbabwean dollar or Zimdollar encompasses the Real Time Gross Settlement (RTGS) dollar as well as bond notes and electronic money balances.
On Friday morning, it took 20 Zimdollars to buy one US dollar hard currency note on Harare’s black market exchanges. Two weeks ago, around 10 Zimdollars bought one US dollar note on the black market.
The Zimdollar is also plummeting on Zimbabwe’s managed interbank foreign currency market, which values the local currency more favourably. As of Friday, it took 14 Zimdollars to buy one US dollar at interbank exchange rates.
Some black market foreign exchange (forex) dealers believe the Reserve Bank of Zimbabwe might be driving up the value of foreign currencies against the Zimdollar because the central bank needs foreign exchange to finance critical imports such as food and fuel.
“There has been strong demand for dollars since last week, and we think it’s the Reserve Bank of Zimbabwe who are buying,” a dealer who wished to remain anonymous told Al Jazeera. “It’s only the Reserve Bank and a few other companies who have real money.”
The central bank has strongly denied it participates on the forex black market.
Efforts to halt the downward spiral
With the Zimdollar spiraling downward for a fortnight, Zimbabwe’s central bank this week froze the bank accounts of a local fuel company, Sakunda Holdings, and the country’s largest automobile dealership, Croco Motors and all its associate companies.
“As we carry out further analysis, you are directed to freeze, with immediate effect, all accounts held in the names of the listed entities until further notice,” said the central bank order.
Although the central bank did not specify why this action was taken, companies could be using Zimdollar accounts to buy foreign exchange, which fuels downward pressure on the Zimdollar.
Economist John Robertson of Robertson Economics told Al Jazeera that he believes the Zimdollar’s collapse is being fueled by supply imbalances resulting from the central bank requiring importers to keep high levels of foreign exchange in their accounts.
“That proportion of foreign exchange is not in the market and that is partly the reason we have scarcity in the market,” said Robertson. “The depreciation [of the Zimdollar] could continue in this current trajectory if this imbalance is not corrected.”
Victor Bhoroma, a Harare-based independent economist, told Al Jazeera he believes Zimbabwe’s currency is losing value because the central bank is growing the supply of Zimdollars in order to fund government programmes and to alleviate a shortage of notes caused by rampant inflation.
“The major causes to Zimbabwe dollar exchange losses are growth in money supply by RBZ [Reserve Bank of Zimbabwe] to fund quasi-fiscal programmes such as Command Agriculture and loss of confidence in the economy,” he said.
Bhoroma added that eroding confidence in the homegrown currency is compelling businesses to abandon it.
“The business sector [formal and informal] is going back to the US dollar rapidly,” he said.
Some economists believe that restoring confidence in the nation’s currency hinges on improving economic governance and on the government and opposition coming together in a constructive political dialogue to address a worsening economic crisis marked by soaring inflation, stagnant wages and shortages of fuel and other essentials.
Zimbabwe’s rapidly depreciating currency is a stark reminder of 2009, when hyperinflation forced the government to abandon the Zimbabwean dollar in favor of the US dollar and other foreign currencies.
The Zimdollar has been besieged by speculation since it was introduced in February.
In June, the government outlawed the use of foreign currencies in local transactions in an effort to stem speculative attacks on the Zimdollar, but faith in the homegrown currency continued to founder.