Zimbabwe’s economy is being driven by two main currencies, the US dollar and the Bond Note. However, the bond note is reportedly not even a currency to begin with. It is just “for ease of change” as explained by a minister. Maybe, that’s where our problem begins.
The Confederation of Zimbabwe Industries (CZI) stated that the statement released last week that criminalising businesses and foreign currency traders was the wrong move. Zimbabwean companies have been resorting to US dollars to perform transactions. The government has since promised to descend upon them and those trading foreign currency on the black market.
CZI stated that this move will give rise to even more problems as it is risky to shut down informal foreign exchange trading when there isn’t a viable formal market to trade.
How About The RBZ Foreign Currency Exchange Auction?
The Foreign Currency Exchange Auction was put in place to minimise the impact of foreign exchange rates on businesses. The auction system was deemed effective when companies such as Zimplats managed to save a staggering US$5.5 million as a result of using this system.
The problem that exists is that some of the beneficiary companies where said to be abusing the system. The Reserve Bank of Zimbabwe revealed a list of companies that were said to be abusing this system, thereby making it seem ineffective.
As it stands, the Forex Auction is now being considered ineffective. One of the major reasons is that it is taking up to 15 weeks to allocate foreign exchange, instead of the intended 2 days. Imagine,15 whole weeks! What business will be able to wait that long?
Zimbabwean Currency On The Verge Of Collapse
As reported by zimrates.com, the Zimbabwean currency is currently trading at 88 per U.S. dollar on the official market as of Oct. 11 from 2.5 a dollar in February 2019. It is trading significantly weaker, at around 170 to the dollar, on the black market.
The CZI stated that well thought out policy measures must be implemented by the relevant authorities before attempting to shut down the black market. This move will bring back confidence into the currency markets and stabilise the economy.
We wonder what financial analysts like Eddie Cross have to say about this considering the report stating that the nation’s economy was finally on a sturdy foundation.