Economists Urge Government To Allow ZiG Currency To Float Freely
The government has been urged to abandon its “command” exchange rate and permit the Zimbabwe Gold (ZiG) currency to float freely, as the gap between the interbank foreign exchange market rate and the street rate continues to widen.
Reports indicate that the U.S. dollar is currently trading between ZiG26 and ZiG40 on the parallel market, depending on the source. As of Wednesday, September 25, it was trading at ZiG13.9912 on the interbank market.
Economist Gift Mugano argued that the command exchange rate is ineffective and called on the Reserve Bank of Zimbabwe (RBZ) to allow market forces to dictate the currency’s value against others. Said Mugano:
The central bank must liberalise the exchange rate, but I understand where the central bank is coming from. So ideally, before the ZiG was launched, it was supposed to build enough reserves.
So it is like we are now in the midst of a problem, of a storm, where the right things must be done, but there is not enough place, sufficient ground created for the liberalisation of exchange rate to work.
Economist Vince Museve said that the value of the ZiG is not directly related to the price of gold; instead, it is influenced by market perception and overall confidence in the currency. He said:
It is clear that the value of the ZiG has nothing to do with the price of gold. It has more to do with market value perception and confidence in the ZiG.
That market is mainly informal and is not influenced by RBZ policies or pronouncements, but rather by sentiment and the general expectations whether things are getting better both economically and politically.
Early this week, the Retailers Association of Zimbabwe (RAZ) warned that large-scale retailers risked shutting down as they are forced to use the official rate. It said:
Suppliers of goods and services to the formal retail sector are now maintaining two-tier price lists for local currency and another for foreign currency, whose implied rates are way higher than the obtaining official exchange rate based on the banking system’s willing buyer-willing seller platform.
Our suppliers have expressed concern that they are faced with an acute foreign currency shortage and excessive volatility of ZiG exchange rates on the parallel/alternative market, which has now become the basis of their pricing framework.
Economist Prosper Chitambara emphasized the importance of the government engaging with retailers to effectively address the concerns that have been raised.
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