THE Zimbabwe dollar on Monday reached the $7 000 mark against the United States dollar on the auction market, only two days after the rate had been raised by the central bank.
The central bank devalued the auction rate by 45% on May 19, saying that was a support price for the diaspora rate.
The auction rate moved from $6 125,20 against the greenback on May 16 to $7 355, 82 on May 23.
On May 23, the highest bid accepted by the central bank was $7 690, 52, while the lowest rate accepted was $7 131, 88 against the greenback and the weighted average was $7 355, 82.
Although the auction rate broke the $7 000 mark against the US dollar, on the parallel market the local currency is trading at US$1:$23 000.
The auction market was introduced on January 12 last year following recommendations from the Confederation of Zimbabwe Industries (CZI).
The auction system was introduced to facilitate easier availability of foreign currency to local industries.
However, industrialists have expressed concerns that the auction system has since stopped working because of the unattractive rate when compared to what is offered on the parallel market.
The ripple effects of the foreign exchange crisis have resulted in shortages of raw materials to business, causing supply disruptions.
The forex shortages have also fuelled inflation and spawned a general shortage of goods which are now found on the black market.
Currently, inflation is 129,1%, up from 123%.
Last week, the central bank ruled out any devaluation arguing that devaluation alone would not open the floodgates of foreign currency as there were other factors at play.
Central bank governor Gideon Gono said that as long as indiscipline abounds in the economy, unguided exchange rate depreciation would fuel “bouts of speculative attacks” on the local currency which exporters claim is overvalued.
As part of tightening forex dealings, Gono said it had been realised that individual foreign currency account (FCA) holders were abusing a US$1 000 cash withdrawing facility.
Gono said with immediate effect no FCA holder would be allowed to withdraw cash in foreign currency unless there was verifiable proof of travel or a demonstrated need to pay out foreign participants on regional or international programmes in the case of international organisations.