On Tuesday, the government launched a foreign currency auction in a bid to find the appropriate exchange rate of the local currency against the United States dollar which is now pegged at US$1:ZW$57.
The auction yielded a weighted average weekly exchange rate of US$1:ZW$57 which will prevail until Tuesday the 30th of June 2020. The highest bid was US$1:ZW$100 and the lowest was US$1:ZW$25 and about US$10 million was alloted against total bids of US$11 million.
“Soon after the announcement of results, retail prices jumped upwards in sympathy with the hike in parallel market rates that were pushed by the new official exchange rate. The auction created new macro-economic shocks which have stoked a new round of inflation and parallel market rates.
The system is porous as bidders may collect forex at a lower official rate and off load at the new parallel market rates of US$1:ZW$100. This is a vicious cycle.
The country is not going anywhere. Fears have been raised about insider trading and information assymmetry. The results show that the amounts allocated to the fuel sector and import of medicines is very low compared to raw materials and machinery.
This is surprising given the current COVID-19 pandemic which requires the importation of sanitizers, masks and related equipment. The country is reeling from food shortages yet not much was alloted to food imports.
The foreign currency auction system has destabilized the market and pushed up parallel market rates and inflation. It is a zero sum game.
However, government must accept full responsibility for policy missteps. The best thing to do is to take the route of complete redollarization accompanied by a post COVID-19 economic stimulus package that will address productivity, export capacity and investment facilitation.
Finally, the RBZ must be sanctioned forthwith from further announcing or issuing new monetary policy measures as they create destabilizing macroeconomic shocks in the economy.
Moreso, unless the RBZ is checked and its wings cut, the economic implosion is going to ignite a revolution, but most importantly, government must implement political and economic reforms to stop the economic free fall. What is happening is just but a deficit of confidence,” said Dr. Mashakada.