What the Reserve Bank of Zimbabwe is doing to address the gap between the official and parallel exchange rates

The Reserve Bank of Zimbabwe is working on closing the gap between the official and the parallel market exchange rates of the Zimbabwe dollar which is said to have widened following reports that the foreign currency auction, which has stabilised the local currency, is failing to meet its weekly allotments and may have a backlog of US$200 million.

The official rate is currently $85.73 to the United Sates dollar but the parallel is anything between $120 and $148.

In his monetary police statement yesterday central bank governor John Mangudya said the bank was addressing the gap through:

• tightening money supply
• expunging the foreign exchange allotment backlog
• increasing the attractiveness of the local currency so that the local currency complements rather than competes with the USD
• discouraging rent-seeking behavior and promoting sustainable behaviour and fair play in the foreign exchange market and
• provision of forward guidance to anchor exchange rate expectations and enhancing business sentiment.

The secretary for Finance, George Guvamatanga, who is a former banker, said the government will assist the central bank top clear the foreign currency allocation backlog in the next 45 days.

“We would want to assure the market that within the next 30 to 45 days we will clear the backlog that is there in the auction system. We know what it is and it is very much manageable,” he said.

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