Zimbabwe is making yet another attempt to stabilize its currency that’s under “enormous pressure,” with inflation driving demand for US dollars, according to the country’s finance chief.
(Bloomberg) — Zimbabwe is making yet another attempt to stabilize its currency that’s under “enormous pressure,” with inflation driving demand for US dollars, according to the country’s finance chief.
The government announced Thursday that businesses will from May 15 be allowed to keep all foreign exchange earned from local sales. Previously, the central bank required that 15% of US dollar sales be converted to local currency using the official rate. The central bank will also raise interest rates that are already the world’s highest.
A wave of increases in the cost of basic goods has gripped the southern African nation, as the Zimbabwe dollar rapidly depreciates against the greenback. This has caused a “resurgence” of macro-economic instability, Finance Minister Mthuli Ncube said in a statement.
“This phenomenon has seen a growing US dollar cash economy,” Ncube said. “It is estimated that a large portion of domestic transactions is being done in foreign currency.”
The national statistics agency said in February that 77% of transactions in Zimbabwe are conducted using the greenback.
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The Zimbabwe dollar has slumped about 40% against the US currency this year to 1,212, while one US dollar fetches as much as 2,300 Zimbabwe dollars in the parallel market. The state has already introduced a series of measures to stem demand for the American currency, including gold-backed digital tokens earlier this week.
The government is committed to winning public confidence in the gold coins and gold-backed digital money by ensuring that at all times they remain fully backed by physical gold reserves, according to Ncube. The coins were introduced last July.
Among other measures, levies and fees charged by its agencies will be paid for in Zimbabwe dollars to promote the use of the local currency, Ncube said. A weekly foreign-currency auction system run by the central bank will be further “fine-tuned.”
Read More: IMF Cautions Zimbabwe Against Plan for Gold-Backed Digital Money
To improve the supply of basic goods, the government has scrapped the requirement for import licenses and all basic products will come into the country free of import duties and taxes. The Reserve Bank of Zimbabwe will increase interest rates on short-term loans to help support the currency, Ncube said.
“This will squeeze out speculative demand,” he said.
Zimbabwe has the world’s highest policy rate at 140%, even after cutting the benchmark rate twice this year.
(Updates from paragraph six with use of reserves to back gold coins and digital tokens)
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