Zimbabwe is considering overhauling its exchange rate regime as the government looks for new measures to rescue its struggling currency.
Governor John Manguja said the latest proposals will be included in a joint Monetary Policy Statement between the Reserve Bank of Zimbabwe and the Ministry of Finance. Zimbabwean President Emmerson Mnangagwa on Tuesday signaled a policy overhaul after the local dollar weakened. The date for the statement has not yet been announced.
Options being considered by a central bank and Treasury working group include abolishing the weekly foreign currency auctions that began in 2020, and increasing the 25% surrender requirement for exporters to banks rather than the central bank. These include migrating to the system and allowing lenders to set the market. Two people familiar with the plan said the exchange rate would be reflected.
Everything is up for debate at this point, with Governor-elect John Mushayabanhu also participating in the deliberations, but asked not to be identified as the talks are private.
After plummeting 90% against the dollar in 2023, the currency has fallen more than 40% this year, making it the world's worst-performing currency over this period. The currency depreciation underscores the economic woes of the southern African country of about 16 million people, recalling the currency collapse and hyperinflation of the late 2000s sparked by political and economic crisis.
The Zimbabwean dollar was trading officially at around $11,000 to the dollar on Wednesday, but on the parallel market at $15,600, according to ZimPriceCheck.com.
Prime Minister Mnangagwa said on Tuesday that a raft of policy measures by the economic cluster would “stop price increases, stabilize the currency and encourage savings”, without providing further details.
Manguja said Mnangagwa's comments were intended to provide “positive guidance” on the intent of the policy statement.
“It is a great relief that the president wants lasting price and exchange rate stability in the economy,” the central bank chief said in response to questions via text message. He declined to comment on the proposals being discussed.
Authorities have repeatedly attempted to rescue the Zimbabwean dollar since its reintroduction in 2019 after it was abolished a decade ago when hyperinflation wiped out its value.
Previous measures have included the introduction of gold coins and bullion-backed digital tokens known as ZiGs, but neither has been able to halt the decline. The central bank's main interest rate is 130%, the highest level in the world.
The US dollar is in high demand, accounting for 80% of transactions. Inflation is accelerating even as the government adopts new price indicators to account for the use of the US currency. The inflation rate in January was 34.8%.
The fundamental problem is that the local dollar remains overvalued and remains controlled by central banks, said Shelton Sibanda, chief investment officer at Imara Asset Management.
“We have to move away from managed exchange rates,” he said. “No new currency or policy will work as long as governments remain reluctant and distrustful of exchange rate fluctuations.”
