Stability, not exchange rate key

Prof. Mthuli Ncube

HARARE – The most critical thing for the exchange rate, including the parallel market is stability as this will enable authorities to control inflation, Finance and Economic Development Minister Mthuli Ncube has said.

Zimbabwe has experienced a volatile parallel market exchange rate since reintroduction of the Zimbabwe dollar and the foreign currency auction system.

Since the introduction of the forex trading platform on June 23, 2020, the gap between the official and black market exchange rate has continued to widen bouncing around a 80 to 100 percent premium.

Currently the official exchange rate is $124,01 per US$1 while the parallel market exchange rate is anything between $220-$250 per US$1.

While acknowledging the widening gap between the official and parallel market exchange rates as “very huge” Mthuli said what is more important is that “it must stay stable”.

Responding to questions in Parliament on Wednesday, he said if the parallel market exchange rate remains stable it will “enable us to control inflation”.

“The gap between the official auction rate and the parallel rate is very huge. We also realised it has widened, what is more important is that it must stay stable. That is the most critical thing. What we do not like is for it to bounce around but if it is stable; if it narrows, it is even better,” said Mthuli.

He said the black market was in existence for speculative reasons adding that economic agencies always want to take advantage of arbitrary opportunity between the two markets.

Mthuli said there are economic agencies that are getting cheap money from the auction, then go and sell in the parallel market.

“They come back and keep round tripping like that.

“We are aware of this and we are dealing with it in terms of law enforcement, but the gap exists because of those arbitrary opportunities.”

However, Mthuli acknowledged that there are certain agents struggling to completely migrate to the use of the Zimbabwe dollar without having to double back into the US dollar.

“That process of the dual role of the two currencies ends up creating a gap, which we are busy trying to deal with” said Mthuli.

He, however, asked for patience as they deal with the parallel market and the route to de-dollarisation.

He said the existence of the parallel market is “a feature of the reforms that we have been implementing and basically trying to get citizens out of the overhang of a pure US dollar economy.”

“It takes time and citizens are still feeling the pain from the introduction of the US dollar. They lost quite a bit of money and it just takes time for them to transition into realising that the Zimbabwe dollar is here and it is here to stay, that it is our currency and we need the currency and it is helpful to us.”

He reiterated that the economy will not “US dollarise” calling it a very bad idea.

“The reason why our industry is performing well, the utilisation is up there, the house of souvenirs is because we have a domestic currency.

“It has made our economy to be competitive; we cannot use the US dollar as a sole currency. That will be a very bad idea indeed.” – Herald