Dollar on downward spiral

Eric Chiriga

THE Zimbabwe dollar continues to weaken on the foreign currency auction, hitting an all-time low of almost $25 000 against the US dollar this week.



Arial, Helvetica, sans-serif”>Reserve Bank of Zimbabwe governor, Gideon Gono, recently devalued the dollar from $10 800 to $17 500 to the US dollar.


The devaluation came barely two months after a 45% adjustment that failed to stem the thriving parallel market.


A fortnight after the devaluation, the US dollar surpassed the $17 500 rate on the auction market.


As at September 5, the Zimbabwe dollar traded at US$1:$24 520 on the auction.


Analysts say the firming of the US dollar against the Zim dollar is a response to market forces.


“It should have been recognised long ago that the exchange rate should be determined by market forces,” economist John Robertson recently said.


Meanwhile, the shortage of foreign currency on the auction has worsened, with demand about 16 times the amount on offer.


On Monday this week, bids totalled US$206 955 565 against a fixed allotment of US$12,5 million.


On the parallel market, major currencies like the US dollar and British pound are trading at $40 000 and $70 000 to the Zimbabwe dollar respectively.


On August 1, 7 358 bids were rejected out of 7 418.


According to Finhold’s monthly economic report for March, the amount of bids surpassed the US$100 million mark on February 10 and 14 auctions, translating into demand of nine times more than the fixed supply of US$11 million per auction.


“The average rejection rate rose from 93% in January, to 97% in February, reflecting the continued excess demand of foreign currency on the auction,” Finhold said in its Economic Update.