Is Zimbabwe’s exchange rate bubble about to burst?

Zimbabwe’s Deputy Finance Minister Clemence Chiduwa says yes. Economist Gift Mugano says yes, too, but the two do not see things the same way.

Mugano says the local currency will collapse this month. Chiduwa says the forex madness will soon run out of steam.

“Currency volatility is the elephant in the room when it comes to our economy. All other fundamentals, including a healthy current account surplus and positive growth are holding up,” Chiduwa said.

“The madness with the rates on the market will come to a point where it runs out of steam and at that point, we have to ensure that it is stable at that level. Let it go haywire because of various factors but it will grow weary.”

Chiduwa says the key is local production.

“Production and value addition will be key in promoting currency stability. We may come up with interventions but the most important thing for a strong and stable currency is to increase production so that we cut back on the need to import as the goods would be produced locally,” he said.

Mugano had another view. “Our currency will die by June,” he said. “We are increasing our debt and we won’t be able to defend our currency. Even the government does not want to use its own currency. It paid bonuses in US dollars, it is paying COVID-19 allowances in US dollars, tollgates are now paid in US dollars. We are not qualified to fight for the Zimbabwe dollar because government itself wants the USD. In fact, the market has dollarised, we are at a funeral, we are going to the grave to bury the Zimbabwe dollar.”

President Emmerson Mnangagwa says his administration has introduced measures to shore up the local currency. He said yesterday, authorities had fined 12 of the 16 banks in the country for financial indiscipline.

But getting the exchange rate right might not be that easy especially with elections pending in the next 12 to 14 months.

The Zimbabwe dollar is currently pegged at $325.3314 at the auction rate, $326.718 at the interbank rate and ranges from $420 to $540 on the black market.

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