Reservations over single-tier exchange rate

Eric Chiriga

THE single-tier exchange rate the Reserve Bank of Zimbabwe plans to adopt will not work unless it is market-driven.


La

st week central bank governor Gideon Gono hinted that the country could reintroduce the single exchange rate once the economic situation improved.


“The adoption of the single exchange rate system will not benefit anyone as long as the rate is determined by the current auction system,” said John Robertson, a renowned economist.


He said the auction system was not ideal because it was controlled, hence it was wrong to call it a “foreign currency auction”.


He said the introduction of a single, free exchange rate was long overdue and debate to adopt it had been going on for a long time.


“The government is under pressure to get rid of the dual system but they are refusing to,” he said.


There were suggestions that the 25% retained on exporters’ foreign currency earnings be reduced to 10% and that the fixed $824 per US dollar exchange rate be increased to $2 000.


Due to the dual exchange rate system, exporters have been facing problems.


Economists said a single exchange rate system would minimise distortions in the economy.


“The existing dual exchange rate system creates a lot of confusion in the economy. The ideal situation is to adopt a single exchange rate cutting across all sectors of the economy,” David Mupamhadzi, an economist with Trust Holdings, said.


He said the collapse of the dual exchange rate would reduce speculation in the market as a single rate was more predictable.


The single exchange rate will allow the country to have a uniform rate, unlike the present scenario whereby there are different rates for people in the diaspora and the RBZ auction system.

Top