A former member of the Reserve Bank of Zimbabwe’s Monetary Policy Committee (MPC), Eddie Cross, on Wednesday warned that the current exchange rate stability on the parallel will be short-lived.
Cross said the stability of the Zimbabwe dollar is largely a result of its shortage in the market and once the government starts paying contractors and suppliers, the local currency will respond.
He said the only solution to the local unit’s volatility is to liberalise the market for the local currency. Said Cross:
The current shortfall of domestic supplies of the local currency has been due to the measures adopted by the government where the government has halted payment to suppliers of services and goods. The government has also tightened up money supply through the reserve bank.
This has resulted in a shortage of local currency and electronic currency. This has had an immediate effect on slowing down speculation in the Zimbabwe dollar against the US dollar (US$) and as a result, the local currency has strengthened on the parallel market.
However this is not going to be long-lived, the government has to return to meeting its obligation of paying contractors and suppliers, and it is in the process of doing that.
Once these payments resume we are going to see a resumption of activity on the parallel market for the local currency.
The only serious solution to this problem is to liberalise the market for the local currency.
This will, in fact, provide a long-term solution to the problems we are confronting.
Anything else, we are just dealing with the symptoms and not the fundamentals.
Africa Economic Development Strategies executive director Gift Mugano also said the stability of the Zim dollar is false and unsustainable. He said:
The shortage has managed to hold the rate at a stable position but this shortage of the Zimdollar is false stability.
It is false stability because it is fragile and dangerous since it cannot sustain, and soon the rate will run away.
We are also fast dollarising as a number of companies in the private sector have begun pricing in US$ and the Zimdollar has already been relegated.
Even local councils and some government departments such as the passport offices are pricing strictly in USD.
Demand has taken a nosedive as customer traffic has declined.
The latest foreign exchange weighted average rate announced by the RBZ on Tuesday is Z$604 per dollar, with businesses allowed to add a 10% markup in pricing goods and services.
This brings it close to the parallel market rate of between Z$650 and Z$800 per greenback. | NewsDay