THE fragile Zimbabwe dollar this week crashed to a record $1 billion against the US dollar as it become apparent that the new foreign currency liberalisation regime had failed to stabilise the local currency.
Six weeks have passed since the Reserve Bank floated the exchange rate under the willing buyer, willing seller twinning arrangement.
This week all four foreign exchange markets were trading at above $1 billion dollars for one US dollar, as demand far outstripped supply in the foreign exchange-starved market.
The four markets are the Old Mutual Implied Rate (OMIR), the official interbank, the cash parallel market and Real Time Gross Settlement System (RTGS).
The OMIR rate closed Tuesday at $1 746 899 809 after having opened trading at Mondayâ€™s rate of $967 480 942.
The OMIR rate is used by some companies to do business transactions and track the true value of the Zimbabwean dollar.
The rate surged even further on Wednesday when it rose to an unprecedented high of $3,9 billion before registering a slight decline to close at $3 047 030 834 last night. It is expected to surge next week.
The official interbank rate surpassed a billion dollars yesterday with most banks trading slightly above the mark. ABC Bank was trading at $1,1 billion for the US dollar while ZABG and Standard Chartered were just over $1 billion.
A handful of banks were trading at slightly below the $1 billion mark by midday yesterday but were poised to exceed the barrier by close of day.
Kingdom Bank was buying the greenback at $995 million and selling at $1 099 000 000 while Stanbic was buying at $990 million and selling at $992 million.
The two thriving parallel markets could not be matched by the interbank system and still held its lead throughout the week.
On the cash parallel market, dealers were buying the US dollar at rates between $1,1 billion and $1,2 billion yesterday.
Parallel market dealers on the RTGS market were buying the US dollar at $1,8 billion yesterday.
The RTGS rate for Tuesday was $1,2 billion before rising to Wednesdayâ€™s rate of $1,6 billion.
Analysts and economists warned that the spectacular crash of the dollar would be an acid test for Governor Gideon Gono who is likely to face a backlash from fiscal authorities ahead of the presidential runoff election pitting President Robert Mugabe against the MDCâ€™s Morgan Tsvangirai.
Mugabe, desperately seeking to win after tasting defeat on March 29, has been attacking businesses for rising prices. He has accused companies of running a regime change agenda. Mugabe has promised to unleash a second price blitz akin to the one which left most companies tottering on the brink of collapse in July last year.
Most companies are yet to recover from the impact of that blitz which left most shops empty.
For their part companies have complained that they are unable to access foreign currency from banks.
They insisted that despite the liberalisation the market is still facing a serious shortage of foreign currency.
Confederation of Zimbabwe Industries (CZI) president Callisto Jokonya told businessdigest three weeks ago that companies were failing to access foreign currency from banks.
Banks are not selling their foreign currency. Even in cases that they sell it is difficult for most companies to get a share of the foreign currency.
On the other hand, the National Incomes and Pricing Commission believes industry has been receiving foreign currency from the banking system but is still hiking prices. NIPC chairman, Godwills Masimirembwa, is on record accusing industry of “betrayal”.
This has raised questions in government and industry circles as to where the foreign currency traded in the interbank system is going. Furthermore, some senior government officials are keen to understand why the rate has been
rising rapidly when companies are failing to access the currency.
Three weeks ago five cabinet ministers met and discussed the impact the interbank rate was having on rising prices. They resolved that the floating of the local currency was inflationary.
“The problem is that you sell foreign currency to a bank and they donâ€™t allow you to buy it when you need it,” University of Zimbabwe business lecturer Professor Tony Hawkins said.
Hawkins said the failure to sell foreign currency to companies by the banks would worsen the situation. The shortages will become worse, Hawkins said. “It is more like running on the spot,” Hawkins said.
“It is pointless. There has to be some flexibility in the system and this has to be augmented by Gono stopping the printing of money. As long as he prints money, demand for scarce foreign currency will be high.”
Meanwhile analysts have warned that the issuance of agro-cheques which are now dispensed at most banks could increase liquidity on the cash-oriented parallel market resulting in a further downward spiral of the dollar.
The RBZ this week reviewed the “special cash withdrawal limit” for farmers to $200 billion from $100 billion.
While the move is ideally prudent under the hyperinflationary environment, the central bankâ€™s policies have often been used feed illegal transactions in the underworld.
The interbank rate has drawn criticism from some government quarters for causing the rise in prices. Some government officials are understood to be clamouring for a command type of economy characterised by a fixed exchange rate mechanism and price controls.
“The liberalisation of the new foreign exchange regime could soon be compromised because of this surge,” said one analyst.
“Gono might face criticism from his authorities because of the ripple inflationary effects of the weakening dollar.”
By Kuda Chikwanda/Bernard Mpofu