Opinion / Columnist
Zimdollar on the verge of complete rejection
16 Jun 2023 at 02:54hrs | Views
THE Zimbabwe dollar, which was reintroduced by the Reserve Bank of Zimbabwe (RBZ) in 2019, is on the verge of collapse and complete market rejection.
The local unit is incessantly plummeting against the United States dollar in both forex exchange markets — official and parallel.
In May 2023 alone, the Zimdollar lost almost 40% on the parallel market from an average of US$1:$2 200 in April to US$1:$3 600 (range: $3 200 to $4 000).
Year-to-date, it is down by a staggering 75%, which is slightly lower than a 77% decline registered in entire 2022.
On the official interbank market, the Zimdollar lost 59% of its value to close May 2023 at US$1:$2 577,07, thus, giving a parallel market premium value of 40%.
Granular analysis further shows that the Zimdollar has officially erased 73% of its value in the first five months of 2023 relative to an 84% decline that was realised in the preceding whole year.
The foregoing numbers are highlighting that the Zimdollar is struggling to perform the store of value function.
As such, economic agents are relentlessly substituting the Zimdollar — flight to safety to preserve earnings value.
Largely driving the incessant Zimdollar decline is the excess liquidity in the economy that was created by the central bank paying for forex ceded by tobacco farmers and exporters.
Treasury is also to blame for the ensuing economic chaos since it is failing to curtail mounting fiscal spending pressures.
It is funding ongoing infrastructural projects, supporting agriculture, cushioning civil servants, and resourcing the Zimbabwe Electoral Commission to conduct this year's harmonised elections slated for August 23.
Starting on June 1, 2023, Treasury will assume all RBZ foreign obligations and undertake payments for all forex ceded by exporters.
All this will contribute to excessive money supply circulating in the economy.
In the end, the increased Zimdollar liquidity amid adverse expectations and high economic uncertainties posed by this year's elections risk a total collapse and market rejection of the local currency.
However, if there is adequate political will to allow Treasury to fully implement some of its recent policy proposals like the promotion of Zimdollar use, sterilisation of excess liquidity, and monetary policy tightening by RBZ, ongoing Zimdollar depreciation against the US dollar will likely moderate and help contain inflation.
Be that as it may, the pending elections are likely promoting opportunistic political business cycles — volatile changes in fiscal spending and taxation which worsens macroeconomic volatility.
The local unit is incessantly plummeting against the United States dollar in both forex exchange markets — official and parallel.
In May 2023 alone, the Zimdollar lost almost 40% on the parallel market from an average of US$1:$2 200 in April to US$1:$3 600 (range: $3 200 to $4 000).
Year-to-date, it is down by a staggering 75%, which is slightly lower than a 77% decline registered in entire 2022.
On the official interbank market, the Zimdollar lost 59% of its value to close May 2023 at US$1:$2 577,07, thus, giving a parallel market premium value of 40%.
Granular analysis further shows that the Zimdollar has officially erased 73% of its value in the first five months of 2023 relative to an 84% decline that was realised in the preceding whole year.
The foregoing numbers are highlighting that the Zimdollar is struggling to perform the store of value function.
As such, economic agents are relentlessly substituting the Zimdollar — flight to safety to preserve earnings value.
Largely driving the incessant Zimdollar decline is the excess liquidity in the economy that was created by the central bank paying for forex ceded by tobacco farmers and exporters.
Treasury is also to blame for the ensuing economic chaos since it is failing to curtail mounting fiscal spending pressures.
It is funding ongoing infrastructural projects, supporting agriculture, cushioning civil servants, and resourcing the Zimbabwe Electoral Commission to conduct this year's harmonised elections slated for August 23.
Starting on June 1, 2023, Treasury will assume all RBZ foreign obligations and undertake payments for all forex ceded by exporters.
All this will contribute to excessive money supply circulating in the economy.
In the end, the increased Zimdollar liquidity amid adverse expectations and high economic uncertainties posed by this year's elections risk a total collapse and market rejection of the local currency.
However, if there is adequate political will to allow Treasury to fully implement some of its recent policy proposals like the promotion of Zimdollar use, sterilisation of excess liquidity, and monetary policy tightening by RBZ, ongoing Zimdollar depreciation against the US dollar will likely moderate and help contain inflation.
Be that as it may, the pending elections are likely promoting opportunistic political business cycles — volatile changes in fiscal spending and taxation which worsens macroeconomic volatility.
Source - Newsday
All articles and letters published on Bulawayo24 have been independently written by members of Bulawayo24's community. The views of users published on Bulawayo24 are therefore their own and do not necessarily represent the views of Bulawayo24. Bulawayo24 editors also reserve the right to edit or delete any and all comments received.
