‘Zim sliding back to 2008 chaos’

GOVERNMENT has been urged to dump its “command” exchange rate and allow the world’s newest currency, the Zimbabwe Gold (ZiG), to freely float to prevent an economic implosion after retailers warned of company closures because of currency distortions.

Authorities introduced the ZiG in April this year claiming it was backed by gold, a basket of mineral resources and foreign reserves.

Retailers on Monday warned that they risked shutting down as they are forced to stick to the official rate.

They said the distortions were unsustainable for their businesses.

Yesterday, a number of retailers were busy doubling their prices in ZiG to hedge against losses as the local currency continues on a free-fall.

Economist Gift Mugano said command exchange rate would not work and called on the Reserve Bank of Zimbabwe (RBZ) to do the right thing by allowing the ZiG to freely float.

Advertisements

“The central bank must liberalise the exchange rate, but I understand where the central bank is coming from,” he said.

“So ideally, before the ZiG was launched, it was supposed to build enough reserves. So it is like we are now in the midst of a problem, of a storm, where the right things must be done, but there is not enough place, sufficient ground created for the liberalisation of exchange rate to work.”

New Perspectives: Gold coins alone will not tame Zim’s inflation
In May, central bank governor John Mushayavhanu announced plans to crack down on supermarkets found flouting government regulations on the official exchange rate.

Mushayavanhu threatened to revoke their licences.

Money changers were also not spared and many were arrested for fuelling exchange rate distortions.

Economist Prosper Chitambara said policing the ZiG would not work as long the command exchange rate remains in place.

“There is a need for government to engage with the retailers and see how best to address some of the concerns that have been raised,” he said.

Economist Vince Museve said the ZiG was doomed.

“It is clear that the value of the ZiG has nothing to do with the price of gold. It has more to do with market value perception and confidence in the ZiG,” Museve said.

“That market is mainly informal and is not influenced by RBZ policies or pronouncements, but rather by sentiment and the general expectations whether things are getting better both economically and politically.”

Political commentator Maxwell Saungweme said the economic implosion would not be averted by threats and arrests.

“We all know you cannot run the economy by statutory instruments, threats and arrests,” Saungweme said.

“At the end, you see more of the same, the same rhetoric threats to businesses and so forth, but it does not work.”

Saungweme said the country was back to the dark days of 2008 when authorities were forced to dump the Zimdollar after it was rendered worthless by inflation.

The Retailers Association of Zimbabwe on Monday said its members were operating under an unsustainable environment.

“Suppliers of goods and services to the formal retail sector are now maintaining two-tier price lists for local currency and another for foreign currency, whose implied rates are way higher than the obtaining official exchange rate based on the banking system’s willing buyer willing seller platform,” the retailers said.

“Our suppliers have expressed concern that they are faced with an acute foreign currency shortage and excessive volatility of ZiG exchange rates on the parallel/alternative market, which has now become the basis of their pricing framework.”

The association said formal retailers were forced to hike their prices in US dolar terms.

“This inevitably leads to real US dollar inflation creeping along with many other economic and social ills as consumers shun formal retailers in favour of informal channels.”

Confederation of Zimbabwe Retailers president Denford Mutashu said there was a need for constructive engagement between the government and the business community.

Authorities have attributed ZiG’s sharp depreciation against the United States dollar to speculation, claiming to have pumped over US$100 million into the market in two months to shore up the five-month-old currency.

This appears to have been too little too late with the dollar trading at between ZiG35 and ZiG40 on the alternative market yesterday depending on the source. It was trading at ZiG13,9854 on the interbank market amid fears the widening gap between the two markets could fuel rent-seeking behaviour.-newsda

Leave a Reply

Your email address will not be published. Required fields are marked *

LinkedIn
LinkedIn
Share