Zimbabwe Dollar Recovers For A Second Time In A Week
The Zimbabwe dollar significantly recovered for the second time in a week, trading at ZWL$5 739 to the USD at the Reserve Bank of Zimbabwe (RBZ) Wholesale Foreign Exchange Auction on Thursday, 29 June.
On Tuesday, the local currency firmed against the United States Dollar to ZWL$6 326, from ZWL$6 926 on 20 June.
On Thursday, the RBZ said eight (8) bids were submitted by banks and all the bids were accepted but only four (4) were allotted cash.
According to the RBZ, US$20 million was on offer and just under US$3 million was allotted.
Commenting on the development, journalist Hopewell Chin’ono said the Government has taken out local currency liquidity so that there are few Zimbabwe dollars to buy the US Dollar. He added:
This is an electioneering ploy that will backfire spectacularly.
The regime won’t let the local currency float freely because it will expose the lack of the required economic fundamentals!
Chin’ono said as of Friday, 30 June, the street rate was around ZWL$8 700. On Tuesday, Chin’ono said:
It is like denying food to a person with diarrhea, and then celebrating when they go to the toilet less than they did before.
You haven’t treated or cured the problem, you have simply denied the patient food, therefore there is nothing to excrete.
So what happened to the Zimbabwean dollar to firm up today? Many people are asking how this is possible.
Firstly, the central bank @ReserveBankZIM has taken out the Zimbabwean dollar liquidity in the marketplace.
Hakuna RTGS muma streets.Therefore the market is short of the Zim Dollar to buy the auction US dollars.
So the movement of the rate is artificial and manipulated!
Shortage of the local currency does not mean that importers and their business enterprises have stopped working.
It just means that they are preferring to use their UD dollars to import goods.
The exchange rate is determined by the auction floor rate.
According to the central bank, auction forex only serves 13% of the total import bill of Zimbabwe.
87% is sourced elsewhere.Can the central bank sustain its liquidity crunch? No, it can’t and it won’t!
WHY? Because Government contractors haven’t been paid including parastatal contractors like ZUPCO who rely on government payments.
If contractors are paid, they will flood the Black Market looking for US Dollars and the local currency will crash again.
That is why I said in my opening remarks that the patient has not been cured, they simply starved the patient and are celebrating that artificial response.
Civil servant salaries were last adjusted when the rate was at Z$1,500 against the US Dollar.
But most crucially, big exporters are not getting their export surrender Zim Dollar payments too.
The government has decided to roll over these payments creating a Zim Dollar backlog.
A time will come when all these Zim Dollar payments will flood the market, that time the local currency will crash again.
Do not be fooled by election tinkering of the exchange rate.
The market is fast dollar rising, preferring to use US Dollars instead of Zim Dollars because Zimbabwe is officially under hyperinflation.
Even the official blended inflation rate month-on-month inflation rate is at 74%.
This in economics classifies Zimbabwe as hyperinflation.
This is the second time it has happened in five years.
Things will only improve when there are serious structural changes in Zimbabwe’s economy and politics and not piecemeal tempering with the exchange rate.
In Nigeria, the central bank Governor was suspended for this, and the forex market was liberalized.
In Zimbabwe, the appointing authority has no appetite for doing the right thing.
As Zimbabwe’s most recent successful Finance Minister, Tendai Biti reminded us in his dramatic terminologies, Ingori Kiya-Kiya Economics!
More: Pindula News
