ZIMBABWEâ€™S foreign currency market was yesterday hit by a fresh wave of turbulence as the local dollar plummeted to a low of $10 million to the greenback on the parallel market because of renewed buying pressure in response to central bankâ€™s introduction of higher denominations and new cash withdrawal limits of $100 million.
The countryâ€™s defenceless dollar, which opened the week at $1,4 million to the US dollar, crashed on the thriving parallel market, reinforcing gloomy forecasts of an unprecedented acceleration in the rate of inflation, which the government said was above 231 million % in July.
Retailers responded to the crash of the local currency by increasing prices of basic goods and commodities, which shot up by an average 300%.
Economists said the Zimbabwe dollar was still battling to find a bottom on the parallel market because of escalating demand from both institutional buyers and individuals trying to escape inflation-induced losses on the local currency.
Banks earlier in the week reviewed their service charges to between $1 billion and $2 billon as the Reserve Bank introduced $10 million, $50 million and $100 million banknotes.
The charges were made after the central bank also announced that withdrawal limits for individuals would be increased to $100 million per week, while companies can withdraw $50 million.
Previously individuals were allowed to withdraw $500 000 daily while corporates withdrew $1 million. The new withdrawal limit will go up to $500 million for individuals on December 12.
Reserve Bank governor Gideon Gono yesterday said with effect from December 19 â€œeach worker can withdraw up to $10 billion per month against presentation of a payslip which shall be endorsed at the bank to prevent abuse of the facility through repeated withdrawalâ€.
Analysts, however, said the money would have been eroded by rising inflation then.
â€œWith effect from January 12 2009 all workers will be able to fully encashÂ their full salaries, without any limits upon presentation of a bona-fide, verifiable pay-slip, which shall be stamped at the bank to avoid repetitive round-tripping,â€ said Gono.
Other major trading currencies â€” the British pound, the South African rand and Botswana pula, were moving around the benchmark US dollar rate.
The crash of the Zimdollar against major currencies erodes the purchasing power of consumers who were already reeling from high prices and shortages of basic commodities. Considering exchange rate relationships, an exchange rate of US$1 to $10 million measures in part how much of a US good (for example one loaf of bread) is paid in the US relative to the price paid for the same good in Zimbabwe â€” the purchasing power parity.
Economic analysts said the progression of the Zimbabwe dollar exchange rate was a reflection of the progression of real prices on the ground in the country relative to prices of the same good in US dollars.
It can be observed that the parallel exchange rate of US$1 which was $1,4 million on Monday, shot up to $10 million as of yesterday, but the price level of goods purchased in the US remained at US$1 between Monday and Friday despite US dollar inflation being evident in Zimbabwe.
The price level for the same goods over the same period in Zimbabwe moved in
relative terms from $1,4 million to $10 million, representing 614,2 % inflation in five days.
By Paul Nyakazeya