Zimbabwe has moved to stabilize its currency that is under “enormous pressure,” with domestic inflation driven by demand for US dollars as a haven, according to the country’s finance chief.
(Bloomberg) — Zimbabwe has moved to stabilize its currency that is under “enormous pressure,” with domestic inflation driven by demand for US dollars as a haven, according to the country’s finance chief.
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 on Thursday.
“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 government has already introduced a series of measures to stem demand for the US currency, including the introduction of gold-backed digital tokens earlier this week.
Under the latest measures announced on Thursday, a weekly foreign-currency auction system run by the central bank will be further “fine-tuned,” and businesses will from May 15 be allowed to keep all foreign exhange earned from local sales. Previously, the central bank required that 15% of all US dollar sales be converted local currency using the official rate.
The government will require that levies and fees charged by its agencies are paid for in Zimbabwe dollars in order to promote the use of the local currency in domestic transactions, Ncube said.
To improve the supply of basic goods, the government has scrapped the requirement for import licenses and all basic goods will come into the country free of import duties and taxes. The Reserve Bank of Zimbabwe will raise interest rates on short-term loans to help support the currency, Ncube said.
“This will squeeze out speculative demand for Zimbabwe dollars and US dollars,” he said.
Zimbabwe has the world’s highest policy rate at 140%, even after cutting the benchmark rate twice this year.
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