HomeEditorial CommentGovt must stop dithering on currency reforms

Govt must stop dithering on currency reforms


CURRENCY uncertainty is the phrase that has come to encapsulate the situation around the Zimbabwe dollar, a currency that appears to have the curse of the Biblical Gibeonites, an Amorite nation doomed to serve as slaves to Israelites for lying to Joshua to avoid being annihilated.

Since the government abandoned its artificial 1:1 peg between the reintroduced Zimbabwe dollar and the greenback in February 2019, the rate has fallen to US$1:90 on the Reserve Bank of Zimbabwe (RBZ) auction market and double that on the black market, especially in the past three months. The sharp plunge has seen acceptance of the currency locally plummeting while it is generally not tradable outside the country.

Increasingly, the primary mode of trade in the country’s verdant informal sector is the greenback. This is huge as the informal sector has been the backbone of the economy since the hyperinflation crisis of the previous decade. It is estimated that over five million Zimbabweans are active in the informal economy, 65% of whom are women.

Also, most retailers and companies now offer the option of being paid in US dollars, raising uncertainty among foreign investors over whether the economy has dollarised. After reinstating the Zimbabwe dollar as legal tender, government has ruled out a return to the US dollar as the default currency.

Early this month, Zimbabwe’s central bank revised its inflation targets to between 35%-53% for year-end, up from 25%-35% previously to reflect the increased weakness of the local currency on the parallel market and developments globally.

RBZ governor John Mangudya noted in a recent report on the economy that “developments on the parallel market for foreign exchange are likely to exert further inflationary pressures in the economy”.

The Confederation of Zimbabwe Industries, the biggest business lobby group in the country, last week warned that the local currency was “in peril” which it blamed on the central bank’s mishandling of the exchange rate, adding that this was hurting economic recovery.

It urged that: “Urgent and well-considered policy measures be implemented by the authorities to bring back confidence into the currency markets”. The situation could have been avoided if “appropriate policy prescriptions had been in place.”

Government’s response to the weakening Zimbabwe dollar has been to blame the industry players, as the sole cause of the instability, resulting in the arrest of business executives.

Last year, it suspended the transfer of shares in dual-listed counters to nip, what it saw as manipulation of the exchange rate in the bud, measures it has maintained to date.

In August 2019, Finance minister Mthuli Ncube wrote in an opinion piece for the United Kingdom-based Financial Times that: “As the former chief economist at the African Development Bank, I have witnessed the results of currency volatility across many contexts. I have seen what works — and the reverse.”

Whatever he is doing now is clearly not working and Zimbabwe needs a new direction to inspire confidence in its currency.

The Zimbabwe dollar is not cursed, it just needs authorities to stop dithering on currency reforms and do what is best for the economy.

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