The Zimbabwe dollar depreciated by at least 20 percent to trade at between Z$10 500 and Z$11 000 to the greenback two weeks after central bank governor Gideon Gono’s monetary policy statement in which he had not adjusted the diaspora rate because he had literally told the private sector- “fend for yourselves”.
This was the view of Zimbank chief economist Best Doroh who said that unless Gono devalued the local currency it would continue to shed value rapidly in parallel trading.
He attributed the dollar’s slide to three factors:
- Gono rejected a recommendation from the RBZ,s Monetary Policy Committee to devalue the “Diaspora” rate (exchange rate for tourists and remittances) from Z$6200 to 7,200:US$ in his January 26 policy statement. Doroh argues that a Z$7,200:US$ rate would have attracted foreign exchange, at least over the next month. After Gono left the rates unchanged, Doroh said the message to the private sector was “fend for yourselves.”
- The RBZ,s twice-weekly currency auctions are less and less able to meet demand. Bids at Monday’s auction reached a record US$96.2 million. Paying out only US$11 million, the RBZ was unable to fill 3,816 of 3,924 bids for foreign exchange. The unsatisfied demand among importers has been phenomenal, Doroh said. (N.B. And no doubt is contributing to the rise in the parallel rate as importers go elsewhere to obtain hard currency.)
- With the maize harvest well underway, many Zimbabweans doubt the country will be able to feed itself. In times of uncertainty, Doroh believes that Zimbabweans often try to convert assets into hard currency.
Full cable:
Viewing cable 05HARARE202, PARALLEL EXCHANGE RATE HITS Z$11,000:US$
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This record is a partial extract of the original cable. The full text of the original cable is not available.
091115Z Feb 05
C O N F I D E N T I A L HARARE 000202
SIPDIS
STATE FOR AF/S
USDOC FOR ROBERT TELCHIN
TREASURY FOR OREN WYCHE-SHAW
PASS USTR FLORIZELLE LISER
STATE PASS USAID FOR MARJORIE COPSON
E.O. 12958: DECL: 12/13/2014
TAGS: EFIN ETRD PGOV ECON EINV ZI
SUBJECT: PARALLEL EXCHANGE RATE HITS Z$11,000:US$
REF: 03 HARARE 179
Classified By: Classified by Ambassador Christopher Dell
under Section 1.4 e/g
¶1. (C) Summary: Importers are now buying U.S. dollars at
Z$10,500-11,000:US$, a zimdollar depreciation of 20 percent
since Reserve Bank (RBZ) Governor Gideon Gono,s January 26
address to the nation, according to Zimbank Senior Economist
Best Doroh. Unless Gono devalues official exchange rates,
Doroh believes the zimdollar will continue to shed value
rapidly in parallel trading. End summary.
¶2. (C) Doroh attributes the zimdollar,s two-week slide to
three factors:
– Gono rejected a recommendation from the RBZ,s Monetary
Policy Committee to devalue the “Disapora” rate (exchange
rate for tourists and remittances) from Z$6200 to 7,200:US$
in his January 26 policy statement. Doroh argues that a
Z$7,200:US$ rate would have attracted foreign exchange, at
least over the next month. After Gono left the rates
unchanged, Doroh said the message to the private sector was
“fend for yourselves.”
– The RBZ,s twice-weekly currency auctions are less and less
able to meet demand. Bids at Monday,s auction reached a
record US$96.2 million. Paying out only US$11 million, the
RBZ was unable to fill 3,816 of 3,924 bids for foreign
exchange. The unsatisfied demand among importers has been
phenomenal, Doroh said. (N.B. And no doubt is contributing to
the rise in the parallel rate as importers go elsewhere to
obtain hard currency.)
– With the maize harvest well underway, many Zimbabweans
doubt the country will be able to feed itself. In times of
uncertainty, Doroh believes that Zimbabweans often try to
convert assets into hard currency.
In Doroh,s view, Gono must now either let the zimdollar,s
Disapora and auction rates slide to Z$7,200:US$, or accept
that the parallel rate could explode. We tracked a record
27:1 ratio between the parallel and official rates in early
2003 (ref).
¶3. (C) Comment: No knows for certain how fast the zimdollar
will depreciate, but according to any purchasing power parity
model, it is overvalued even at Z$11,000:US$. Despite
triple-digit inflation, the zimdollar,s official rate
actually appreciated from Z$6,500 to 6,200:US$ during 2004.
We expect Gono wants to avoid a ratio between parallel and
official rates beyond 2:1, a point at which rent-seeking
replaces many productive activities. Already we suspect
smaller oil companies are diverting fuel procured with
auction funds to neighboring countries. The local price of
Z$3,600/liter converts to just US$.30/liter at parallel
rates, versus current liter prices of US$.83 in Zambia,
US$.74 in Mozambique, and US$.65 in South Africa.
DELL
(23 VIEWS)