News / National
Zimdollar falls 42% in a month
26 Jul 2019 at 08:27hrs | Views
THE Zimdollar (ZWL$) has devalued by 41,57% to $9,16 against the United States dollar on the official interbank market due to low forex and market confidence, a month after it was reintroduced, analysts have said.
On June 24, when authorities scrapped the multiple currency regime a decade after it was promulgated, the forex rate was US$1:$6,47 when the quasi currency, the RTGS dollar, was the local currency.
"The lack of confidence is one of the biggest challenges or deficits we are facing in the market, which will continue to devalue the Zimbabwe dollar…Yes, we can do some measure of forcing the liquidation of money into the interbank market on export proceeds, but you cannot do the same on free funds, as the owners would have to use their money in whichever way they want," financial expert Persistence Gwanyanya told NewsDay yesterday.
He said the central bank must ensure sufficient forex inflows on the interbank market.
"The objectives that the Reserve Bank should be observing include value preservation and efficient operation on the interbank market. So, if we achieve the efficient operation of the market, it means we are going to have significant flows of money into the interbank market. The amount of foreign currency that we receive as an economy is almost similar to the foreign currency we use as an economy, such that a lower exchange rate or a firmer exchange rate is quite possible," he said.
Gwanyanya warned that without confidence, the Zimdollar would devalue.
Comparatively, on the parallel forex market, the Zimdollar appreciated by 28,57% to $10 from $14 on June 24, the day the local currency was reintroduced.
According to money traders, the reason why the parallel forex market rate has appreciated is because traders are largely holding on to foreign currency following reintroduction of the Zimdollar.
Traders told NewsDay that holding onto the forex is so that they "wait and see the long term effects" of the reintroduction of the Zimdollar.
This is why, despite the official and parallel market rates seemingly converging, the Zimdollar continues to devalue as forex holders' mistrust in government continues to prevent the free movement of money estimated to be between US$1,5 billion and US$2 billion.
The Zimdollar was reintroduced to control escalating parallel market rates, which were being used as a basis for price adjustments.
On June 24, when authorities scrapped the multiple currency regime a decade after it was promulgated, the forex rate was US$1:$6,47 when the quasi currency, the RTGS dollar, was the local currency.
"The lack of confidence is one of the biggest challenges or deficits we are facing in the market, which will continue to devalue the Zimbabwe dollar…Yes, we can do some measure of forcing the liquidation of money into the interbank market on export proceeds, but you cannot do the same on free funds, as the owners would have to use their money in whichever way they want," financial expert Persistence Gwanyanya told NewsDay yesterday.
He said the central bank must ensure sufficient forex inflows on the interbank market.
"The objectives that the Reserve Bank should be observing include value preservation and efficient operation on the interbank market. So, if we achieve the efficient operation of the market, it means we are going to have significant flows of money into the interbank market. The amount of foreign currency that we receive as an economy is almost similar to the foreign currency we use as an economy, such that a lower exchange rate or a firmer exchange rate is quite possible," he said.
Gwanyanya warned that without confidence, the Zimdollar would devalue.
Comparatively, on the parallel forex market, the Zimdollar appreciated by 28,57% to $10 from $14 on June 24, the day the local currency was reintroduced.
According to money traders, the reason why the parallel forex market rate has appreciated is because traders are largely holding on to foreign currency following reintroduction of the Zimdollar.
Traders told NewsDay that holding onto the forex is so that they "wait and see the long term effects" of the reintroduction of the Zimdollar.
This is why, despite the official and parallel market rates seemingly converging, the Zimdollar continues to devalue as forex holders' mistrust in government continues to prevent the free movement of money estimated to be between US$1,5 billion and US$2 billion.
The Zimdollar was reintroduced to control escalating parallel market rates, which were being used as a basis for price adjustments.
Source - newsday
