Zimbabwe: Zim Dollar Gains Third Week Consecutively

15 September 2020

The Zimbabwe Dollar (ZWL) marginally strengthened by 1.2 percent against the American dollar (USD) to settle at ZWL$ 81.7/USD in the latest foreign currency auction conducted this afternoon marking a third consecutive gaining streak.

Last week the ZWL netted a weighted average rate of ZWL$ 82.7/USD as the foreign currency auction system continued to pay dividend.

The development has also taken effect on the parallel market rates which have sort of stabilized, albeit at around ZWL$ 100/USD.

Despite the gains in recent weeks, on the market the local currency remains unattractive as the market is seemingly in favor of the USD.

"The genuineness of the exchange rate is not in its rate (Either high or low) but in its relative stability to foster price stability and improve market confidence. We have seen the official exchange rate fluctuating around 82-83/ USD from week 8 of the auction that is 13 August. The effect has also been felt on the parallel market where exchange rate of between 95 and 110 has been maintained for the past 6 weeks or so. We can therefore use the 1:83 for international valuations without an iota of doubt and we trust that our authorities are not massaging the exchange rate," said economic analyst, Pepukai Chivore.

Questions have been thrown in to quiz if the official exchange rate from the auction system could be internationally recognizable against major currencies.

So far in the SADC region the Zimbabwe Dollar is stronger than much stable economies including the continent's seventh biggest economy Angola's Kwanza which current trades at 624/ USD.

For starters, one has to excuse Zimbabweans for being so skeptical about their currency and the determination of its value.

Barely a year ago, to establish the value of the Zimbabwe Dollar the Reserve Bank of Zimbabwe ran a controversial Interbank Foreign Currency Market which was manipulated by the authorizes to keep the exchange rate within set limits.

The results of this was an official exchange rate disconnected from that set by market forces using the law of supply and demand of foreign currency.

"Exchange rate is a function of demand and supply of forex. If demand outstrips supply our local currency depreciates. Any massaging will be reflected through the growth in the premium. Although some market watchers content that the auction system reflects more of a crawling peg and is not entirely determined by market forces, the decline in reserve money from ZW$16,66 billion as of July 31 to ZW$11,81 billion as of August 14 in a way is an explanation of why the Zimdollar has been marginally firming," Chivore said.

To back this up, one has to follow how the premium on the USD has been declining from levels of 30 percent around May but has now fallen to around 15 percent, showing low appetite for the green back on the parallel market.

The country has seen improved foreign currency supplies from mainly tobacco sales and the diaspora remittances with other exports such as gold complementing foreign currency earnings.

On the flip-side, demand has been lower than normal due to lockdowns which affected outbound tourism, international students' fees and cross border traders.

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