The Zimbabwean dollar has continued its dramatic meltdown as it weakened even further against the greenback this week, 263 days after it was made the sole legal tender.
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The local unit has plummeted from ZW$29 to the United States dollar to ZW$40 this week on the parallel market as the authorities struggle to defend the increasingly unstable domestic currency.
Government freed the exchange from February 20 last year as part of currency reforms. It then brought back the hitherto demonetised Zimdollar on June 24, unexpectedly banning the multi-currency system which ensured exchange rate stabilisation and ended hyperinflation in 2009. However, the currency reforms have failed to shore up the local unit which is in freefall.
Standards of living for ordinary Zimbabweans and business operations have deteriorated, amid tumultuous price escalations and rapid erosion of income with year-on-year inflation nudging towards the 500% mark.
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In a desperate bid to stabilise the exchange rate, government this week set up a “Currency Stabilisation Taskforce” among a cocktail of measures.
Finance minister Mthuli Ncube announced this week the formation of the taskforce spearheaded by his ministry and the Reserve Bank of Zimbabwe and which will include members of the Monetary Policy Committee and Presidential Advisory Council. The new taskforce will be chaired by Ncube.
Among the measures announced by the Treasury boss is the introduction of a “managed Floating Exchange Rate System”, in which an electronic forex trading platform based on the Reuters system has been put in place with immediate effect.
“Zimbabwe has had no transparent and effective foreign exchange trading platform for a long time. Consequently, official rates have not been effectively determined, while a thriving parallel market has developed. To correct this anomaly, an electronic forex trading platform based on the Reuters system is being immediately put in place,” Ncube said.
“This platform will allow foreign exchange to be traded freely among the banks and permit a true market exchange rate to be determined.”
The move, however, has not convinced economist analysts, with Godfrey Kanyenze pointing out that there is a lack of political will to effectively address the crisis.
“We have always said that this (currency volatility) will go in one direction. There is no respite despite forums such as the Tripartite Negotiating Forum and the Political Actors Dialogue. These forums are just a semblance of doing something. There is no political will,” Kanyenze said.
The setting up of the currency stabilisation taskforce, Kanyenze observed, is mere window dressing which does not tackle the core issue of corrupt cartels which have amassed massive wealth while wreaking havoc in the economy.
On the sidelines of the press briefing to announce measures to stabilise the currency, Reserve Bank of Zimbabwe governor John Mangudya told business digest that there are forces that go beyond the monetary authorities which cause the volatile movement of the exchange rate.
“The monetary factors cannot fully explain the depreciation of the local currency which means that there is another X-factor, which is called the residual factor in statistics,” Mangudya said.
“That residual factor seems to be bigger than the role played by monetary authorities in this economy. Who are those moving the exchange rate and for what purpose? So what we are saying is that the Zimbabwe foreign exchange market seems to be a complex market where non-monetary factors and monetary factors seem to be playing themselves out and then they come up with an exchange rate. This is what we are studying and we need to go deeper into the issue.”
The depreciation of the local currency has amplified calls from various quarters, including the Zimbabwe Congress of Trade Unions, for the government to ditch the weakening local currency for the South African rand.
However, Ncube this week shot down the proposal, saying the process of adopting the rand is cumbersome and time consuming. ZCTU president Peter Mutasa said the rapid depreciation of the local unit justifies its call for workers to be paid in forex.
“There is no other way out for workers after the liberalisation of the exchange rate. Workers must fight for foreign currency-based salaries,” Mutasa said. “The ZCTU has carried out consultations and received a mandate to lead the fight against oppression and slavery through various forms of action.”
He added that the government has messed up the economy with prices now beyond the reach of many who are struggling to make ends meet.