DESPITE the central bank having allowed the use of free funds during the Covid-19 lockdown period in a move widely seen as re-dollarisation by the backdoor and a tacit admission of the failure of de-dollarisation, the global pandemic is seen presenting an opportunity for the strengthening of the Zimbabwe dollar.
This may also allow the government some room to rethink economic planning.
There have been recommendations to maintain the local currency alongside the United States dollar, especially now that global economies are hard hit.
Economic analysts believe the fragility of the US economy in terms of its debt levels, lack of preparedness to deal with the Covid-19 outbreak and poor economic outlook will have an impact on the status of its currency as a safe haven, thus currencies of other countries are seen emerging strong in the current environment.
This comes at a time the eight-member countries of the Shanghai Co-operation Organisation (SCO), including China, Russia and Pakistan, this week made the decision to conduct bilateral trade and investment and issue bonds in local and national currencies instead of US dollars.
The anticipated roadmap is hinged on the fact that if trade and investment between the member states of the SCO are conducted in national currencies instead of US dollars and pounds, it will be a big breakthrough as this is expected to strengthen the national currencies of the member countries and promote mutual trade and investment.
Likewise, financial analyst George Nhepera this week said other currencies are likely to appreciate in value, including the Zimdollar. Against this background, he said it is advisable that the country maintain its local currency operating side-by-side with other international currencies.
In the face of the Covid-19 crisis where a number of countries have gone on lockdown, Nhepera said this is giving Zimbabwe an opportunity to reboot the economy.
“The lockdown is giving the country an opportunity to restart our economic planning with key lessons in the past. If we succeed in controlling this virus, then we would have done a great thing, to our credit, by making a fast decision to elevate lives of people above everything. Time for cheap politics is over,” Nhepera said.
“Now is the time to rebuild after the lockdown period. You will realise the markets rates have fallen from ZW$30 to ZW$25 to the US dollar on transfer. Of course, after the lockdown, whether we like it or not, there shall be huge demand for forex to restart business, so rates shall go up. It’s simple supply and demand principles. No one can defeat those time-tested economic principles,” he said.
While others have said local currency volatility is susceptible to global factors and remains sorely a function of country-specific conditions, Nhepera said whatever losses are incurred from the lockdown, the country has the capacity to rebuild the economy with support from the introduction of the US dollar.
The introduction of the local currency through Statutory Instrument (SI) 142 of 2019 was premature with the country lacking the necessary fundamentals for bringing back the Zimdollar, including six-month import cover and low inflation levels.
The introduction of the local unit has resulted in runaway inflation which has decimated incomes and pensions, resulting in more goods and services being sold using the greenback, as the local unit rapidly lost value. Government then scrapped the ban on the use of foreign currency for domestic transactions through SI 85 of 2020 last week.
Market analyst Ranga Makwata said the re-introduction of the US dollar into the economy is a positive development which should go beyond this period where the country is grappling with Covid-19.
“For a long time the market has been clamouring for the return of a stable currency which is exactly what the RBZ has done in its interim measures. Of course, the major concern right now is the fixed rate of ZW$25 per US dollar at a time the rate on the parallel market was above ZW$40.
“RBZ measures might not be sufficient in meeting market expectations, but legalising the use of free funds indicates a favourable trajectory towards monetary stability,” he said.