Zimbabwe’s Currency Fix Is Failing: It Has Too Few Dollars (

HARARE (Capital Markets in Africa) – Zimbabwe’s attempt to close a wide gap between its official and black-market exchange rates appears to be failing.

The southern African nation effectively devalued its currency, known as RTGS$, in February when it ended a peg to the U.S. dollar and allowed it to trade on an interbank market. That was to try to end dire shortages of fuel, medicine and other imported goods.

It hasn’t worked out as planned: the black-market rate remains much weaker than the official one amid a lack of dollar supplies from the central bank and foreign investors, who mostly continue to shun the country.

The central bank carried out a second big devaluation on Wednesday of almost 25%, which has taken the official price of the RTGS$ to around 4.76 against the greenback. The parallel rate is 33% weaker at 7.1, according to marketwatch.co.zw, a website run by financial analysts.

Government officials announced last weekend that they’d obtained a $500 million loan that would be used to boost liquidity in the interbank market. The relief from that was short-lived, with the parallel rate giving up its initial gains.

The central bank said on May 20 that fuel importers will no longer be able to buy dollars at a one-to-one exchange rate and that they’d have to use the interbank market.

Zimbabwe Moors Currency Market on Willing Buyer-Seller Plan
Zimbabwe will anchor its interbank currency market on the willing buyer, willing seller principle, allowing authorized dealers to sell at rates they’re willing to work with, the central bank said.

Dealers will sell foreign currency at the rate agreed upon plus a margin of up to 2.5% within 24 hours, the Harare-based Reserve Bank of Zimbabwe said in an emailed circular dated May 22. The measures took effect a day earlier.

Oil-market companies will buy foreign currency to import fuel at the prevailing interbank market-exchange rate, it said, scrapping the one-to-one rate that applied before May 21,

The central bank is intervening to stem a rout in recent weeks on the black and as the price of goods soars at the fastest pace in more than a decade. Local investors have been piling into the stock market to hedge against inflation, which accelerated 75.9% in April.

The bank obtained a $500 million, four-year facility obtained from the African Export-Import Bank that uses platinum production as collateral, people familiar with the situation. The bank has started drawing it down to improve the functionality of the interbank foreign-exchange market, it said.

Soucrce: Bloomberg Business News