BUSINESSES finally had enough and told the Reserve Bank governor John Mangudya that the Zimbabwe dollar was done as a sustainable currency. They do not want it.
Last Wednesday, at a review of the 2022 monetary policy statement hosted by the Zimbabwe Economic Society two days after the MPS was released, the rejection of the Zimdollar was loud and clear.
Businesses don’t want it, consumers don’t want it and even the government does not want the Zimdollar as evidenced by its pricing of services according to the parallel forex market. That’s because the Zimdollar is driving inflation and poverty. After all, who wants a currency that loses value on a weekly basis? The spectre of the 2008 scenario when prices changed every hour is looming uncomfortably on the horizon, and no one wants to be holding the cursed currency if they could help it.
Economists noted in the monetary policy statement review, that the depreciation of the Zimdollar was mostly as a result of the Reserve Bank of Zimbabwe and Finance and Economic Development ministry not accepting obvious facts about the local currency.
These facts are why there is no true Dutch auction system, market consideration, convergence between the parallel and official forex rates, and foreign currency to support the Zimdollar.
The failure to create a true forex Dutch auction system can be seen in the fact that after taking in all bids to arrive at the highest price, it’s the lower exchange rate that the central bank adopts as the official rate at the weekly forex auction.
Yet, a true Dutch auction system is one “in which the price of something offered is determined after taking in all bids to arrive at the highest price at which the total offering can be sold”.
The Zimdollar was reintroduced as legal tender without consultation with consumers and business players. As a result, there was no assurance that it would be accepted by the market, particularly consumers and businesses who are the biggest users of currency.
If the Zimdollar was valuable, there would be convergence between the official and parallel forex rates as that would mean there would have been price discovery. However, as it stands, the official forex rate stands at US$1:$118,87 while the parallel comparative is US$1:$240.
Compare that to the exchange rate of US$1:6,36 and US$1:10 on the official and parallel markets, respectively, on June 26, 2019 the day the local currency was reintroduced.
There is enough foreign currency on the market as the central bank recorded US$9,7 billion in foreign currency receipts last year, but not enough to support the Zimdollar. This is because when exporters generate their export proceeds or when locals receive remittances they understand that the true “store of value” is keeping the greenback as an asset instead of exchanging it for the Zimdollar.
Hence, the US$1,7 billion in nostro accounts and another estimated US$1,5 billion worth of notes that is said to be circulating in the informal sector, remain out of reach of the central bank.
With all this said, why is the “government of the people” deliberately making the Zimdollar legal tender when it’s making people poorer and businesses broke?
Therein lies the mystery. Or maybe, the arbitrage is the allure for the authorities as buying US dollars from the official forex market for less than half its value on the parallel market results in a near 100% gain.
Who among the connected could resist the opportunity to buy US dollars at less than half the value every week, guaranteeing over 100% gain? How long has the perfect looting scheme been running? The official auction market just makes a perfect looting front for those with the right connections while the majority of Zimbabweans wallow in the Zimdollar-induced poverty.