News / Local
'Public prefers US$ over Zimdollars'
21 Aug 2021 at 07:35hrs | Views
RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya has blamed the widening gap between the official and parallel forex rates on locals preferring greenback over the local currency as a store of value.
With delays being faced by companies in accessing foreign currency from the forex auction and the inaccessibility to that market by more firms, the parallel forex market continues to provide an alternative source of foreign currency.
This, together with waning confidence in the Zimbabwe dollar which suffers lack of policy support, has spurred the exchange rate disparity.
Currently, the official forex rate is US$1:85, while the parallel market is almost double at $1:150. The runaway street value has triggered inflation, with retailers forced to hike prices of commodities.
But, in a virtual 2021 mid-term monetary policy statement review hosted by the Zimbabwe Independent and Zimbabwe Economics Society yesterday, Mangudya said the economic fundamentals were not to blame.
"If you have an economy with US$1,8 billion (current foreign currency account deposits) and the reserve money which is the commercial banks money at the central bank of $24 billion or US$300 million in foreign currency, it means you do not have a problem with foreign currency," he said.
"What it means, by the gap that is there which is shown by the exchange rate is that it is not a fundamental supply and demand gap, it is a preference gap whereby people prefer to hold foreign currency as a store of value as opposed to wanting foreign currency for the purpose of transacting foreign currency transactions."
The admission by Mangudya that people prefer to hold the greenback over the local currency is confirmation that the economy was dollarising.
According to data provided by Mangudya and the central bank, there is currently $24 billion in reserve money and local currency deposits worth $155,52 billion, respectively, with the latter figure cited in the 2021 monetary policy statement released on August 5.
The money, in local currency, translates to nearly $180 billion.
However, if the US$1,8 billion currently sitting in foreign currency accounts is converted to local currency using the official exchange rate, it becomes $154,47 billion.
"When you talk of foreign currency demand, we talk of foreign currency demand. When we are talking about effective demand for foreign currency it is foreign currency that is required for legitimate foreign currency use," Mangudya said.
"So, it means as a country, we need to continue to have introspection on this matter and therefore say; how best we can manage that preference. So, what we are doing at the central bank is, we are saying, because that is our belief and what we have done, we therefore need to focus on controlling inflation, in taming inflation so that at the end of the day the preference is reduced because the value of the local currency would have gone up."
With delays being faced by companies in accessing foreign currency from the forex auction and the inaccessibility to that market by more firms, the parallel forex market continues to provide an alternative source of foreign currency.
This, together with waning confidence in the Zimbabwe dollar which suffers lack of policy support, has spurred the exchange rate disparity.
Currently, the official forex rate is US$1:85, while the parallel market is almost double at $1:150. The runaway street value has triggered inflation, with retailers forced to hike prices of commodities.
But, in a virtual 2021 mid-term monetary policy statement review hosted by the Zimbabwe Independent and Zimbabwe Economics Society yesterday, Mangudya said the economic fundamentals were not to blame.
"If you have an economy with US$1,8 billion (current foreign currency account deposits) and the reserve money which is the commercial banks money at the central bank of $24 billion or US$300 million in foreign currency, it means you do not have a problem with foreign currency," he said.
"What it means, by the gap that is there which is shown by the exchange rate is that it is not a fundamental supply and demand gap, it is a preference gap whereby people prefer to hold foreign currency as a store of value as opposed to wanting foreign currency for the purpose of transacting foreign currency transactions."
The admission by Mangudya that people prefer to hold the greenback over the local currency is confirmation that the economy was dollarising.
According to data provided by Mangudya and the central bank, there is currently $24 billion in reserve money and local currency deposits worth $155,52 billion, respectively, with the latter figure cited in the 2021 monetary policy statement released on August 5.
The money, in local currency, translates to nearly $180 billion.
However, if the US$1,8 billion currently sitting in foreign currency accounts is converted to local currency using the official exchange rate, it becomes $154,47 billion.
"When you talk of foreign currency demand, we talk of foreign currency demand. When we are talking about effective demand for foreign currency it is foreign currency that is required for legitimate foreign currency use," Mangudya said.
"So, it means as a country, we need to continue to have introspection on this matter and therefore say; how best we can manage that preference. So, what we are doing at the central bank is, we are saying, because that is our belief and what we have done, we therefore need to focus on controlling inflation, in taming inflation so that at the end of the day the preference is reduced because the value of the local currency would have gone up."
Source - newsday
