New Ziana – The free fall of the exchange rate on the parallel market has resulted in rapid increase
of prices of basic commodities and services, causing inflationary pressures and threatening a return
to hyper-inflation.
As of Tuesday, US$1 was trading at RTGS $2000 against the official exchange rate of slightly over
RTGS $1000 at S1070.
Polad principal and economic thematic committee chairperson Trust Chikohora urged government
to take drastic action to address the problem which has a negative effect on prices.
“A similar situation happened in the first part of 2022 last and it took robust measures to cartel it,
but it has come back and it’s having an effect on prices because prices follow the parallel market
rate.
“This has been caused by increased money supply growth that has happened of late and also the
fact that the official market auction rate has continued not to react to the realities of the market and
so we have gone back to the situation where there are even opportunities for an arbitrage between
the auction official market and the parallel market,” said the chartered accountant.
He called upon the government to take action and arrest the situation saying “ it now threatens to
accelerate us back to hyper-inflation”.
“Hyper-inflation is not good for the economy. We cannot have economic growth with hyper-
inflation and we cannot have investments in hyper-inflation environment, so hyper-inflation is
probably the biggest threat towards the achievement of the objectives of vision 2030,” Chikohora
said.
He called for tight money supply limitation, and to revisit the issue of interest rates which are now
being lowered by the Central Bank.
“Interest rates needs to be at a level which is commensurate with the level of inflation, interest rates
cannot be below inflation rate that causes this money supply rate as well and causes this galloping of
the exchange rate on the parallel market because people can just borrow money cheaply and take
the money to the parallel market and be able to realise a profit.
“So the issue of the interest rates needs to be monitored closely and as we resolved at the Polad
Currency Indaba last year when things had gone the other way interest rates must be at a level
which is higher that the inflation rate,” he said.
The Polad principal and economic thematic committee chairperson urged RBZ to relook the issue of
gold coins and see how the gold banked digital currency can also have an impact if used as an
alternative store of value.
“The gold banked digital currency needs also to be considered like what was done on gold coins to
give it prescribed asset status so that even institutional investors the big movers can take it up …
“That would limit the rate on the parallel market so that people with excess Zimdollar liquidity can
take that to an alternative store of value and not to the parallel market,” he said.
RBZ is set to introduce a gold-backed digital currency to be used as legal tender for transacting in the
country as part of interventions to stabilise the local currency.
The Central Bank is also planning to release more Mosi-oa-Tunya gold coins onto the market to tame
the recent depreciation of the Zimbabwe dollar on the parallel market.
RBZ stated that the current exchange rate volatility was caused by expectations of increased foreign
currency supply on the market when the tobacco marketing season opened in March.
