Tuesday 31 March 2020

BLACK MARKET RATES COLLAPSE


THE value of the United States dollar against the Zimbabwe dollar on the parallel market has nosedived due to a drop in demand, economists have said.

The depreciation comes hardly a week after the Reserve Bank of Zimbabwe (RBZ) reintroduced the use of foreign currency for local transactions in addition to abandoning the managed floating exchange rate as part of the central bank’s measures to deal with the coronavirus (Covid-19) pandemic.

Parallel market rates for the US dollar, which had gone up to as high as 1 US$ to $41 for electronic transfers and US$ to $32 in cash last week, have since tumbled to as low as US$ to $34 for electronic transfers and US$ dollar to $25.

Speaking to the Daily News yesterday, economist Gift Mugano said the tumbling US$ rates on the parallel market was not surprising because there has been a drastic drop in demand due to the coronavirus (Covid-19) pandemic.

“The drop in rates is the function of demand. Demand is now very low because of the Covid-19 lockdown and there is a significant decline in the number of people who need US dollars considering that there is no significant production in industry,” Mugano said.

He added that there was no guarantee that the Zimbabwe dollar would remain in use post-lockdown.

“This development has two end possibilities. After the lockdown, the Zimbabwean dollar might be wiped out for good because the economy would have dollarised on its own.The government might have been too embarrassed to admit that the local currency has failed and are hiding behind Covid-19. It is very possible that after this lockdown, retailers would have dollarised,” Mugano said.

RBZ re-introduced the use of foreign currency for domestic transactions in a bid to tap into private foreign currency savings as the country gears up for the battle against the novel coronavirus nine months after the government outlawed the use of foreign currency as legal tender.

Mugano said if the Zimbabwe dollar remains in use after the lockdown, it would lose value dramatically when demand for the US dollar shoots up as expected.

“If we do not have enough US dollars after the lockdown, we might be forced to continue using the Zimdollar and the US dollar parallel market rate will shoot up due to huge demand.However, chances are that the Zimbabwean dollar has no possibility of holding fort,” he said.

Zimbabwe Coalition on Debt and Development (Zimcodd) executive director Janet Zhou told the Daily News that there was currently little or no demand for US dollars due to the lockdown.

“I doubt that we will do away with the Zimdollar, but we may continue with the multi-currency system because the Covid-19 impacts are not just short term; there are long term economic impacts to grapple with. I do not think the government is in a position yet to pay its employees in US$ hence completely wiping out the local currency may not work at this stage,” Zhou said. Daily News

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