The local currency is heading for a critical week and the government’s block on loans could wreck the agriculture sector
The Zimbabwe dollar lost 40% of its value against its US counterpart over the weekend according to the Reserve Bank of Zimbabwe (RBZ), the central bank. The combination of the crashing currency and the spectre of hyperinflation – prices are rising at over 100% a month – stirs memories of the economic meltdown in the wake of the political crisis over the disputed elections of 2008. Then, rival parties negotiated a power-sharing agreement and suspended the Zimbabwe dollar.
The latest crash in the value of the Zimbabwe dollar comes in the wake of President Emmerson Mnangagwa’s order on 7 May to all banks to stop lending and help to stabilise the financial system.
Mnangagwa, who has pinned his economic strategy on the revival of the Zim dollar, said that the two-tier foreign exchange regime would stabilise the currency. ‘Over time, the auction rate and the interbank rate established through the willing buyer-willing-seller will provide the basis for the orderly unification of the exchange rate,’ he said. So far, his policies have done the opposite (AC Vol 63 No 2, Dismissal could herald regime shake-up).
This edict from the President threw the market into chaos. The RBZ quoted a rate of Z$275.79 against the US dollar on the morning of 9 May compared to a closing rate of Z$165.99 to the US dollar on 6 May. This unnerved many bankers in Harare who complained about a spate of confusing announcements.
The latest RBZ rate was presumed by some to be the so-called ‘willing-buyer-willing seller’ interbank rate as opposed to the auction rate which offers a substantial premium for holders of US dollars.
Others were less clear on what would be the governing rate for forex transactions this week. On 10 May, the RBZ is due to hold its weekly foreign exchange auction. Those auctions have produced what the RBZ calls its official rate.
The auction rate has been shadowing the crash in the currency on the parallel market where this week a US dollar is selling for Z$425. The Zim dollar has lost over half its value this year.
Bankers and industry leaders predicted that Mnangagwa’s bar on lending would worsen the country’s economic woes. Its purpose – to control money supply – would cause serious collateral damage, according to the Zimbabwe National Chamber of Commerce (ZNCC).
The move would legitimise a parallel banking system with usurious interest rates, said the ZNCC in a public statement on 9 May. This reflected wider concerns about the opacity of the Mnangagwa government and its commercial associates such as Kudakwashe Tagwirei. The ZNCC added that ‘no investor would be attracted to such an economy where lending can be suspended overnight’ (AC Vol 63 No 7, Sanctioned mogul adds steel to portfolio).
– Africa Confidential 2022