Zimbabwe business is now scrambling for the once “worthless” local currency, the Zimbabwe dollar, as it continues to strengthen against the United States dollar.
Most businesses had opted for the US dollar to preserve value but the Zimbabwe dollar has started firming against the greenback in the last three foreign exchange auctions.
Economist Eddie Cross, who is also a member of the Monetary Policy Committee, believes that this is not a fluke.
He says the gap between the auction rate and the parallel market rate is largely due to the fact that the government came into the market to source hard currency for bulk payments to contractors on various State financed infrastructure projects.
The government has embarked on several infrastructure projects especially roads and the provision of water in rural areas.
It is now spending half of its budget on capital projects as opposed to only 5 to 6 percent before the new administration took over.
Cross said the local currency was likely to strengthen once this surge in liquidity is dealt with.
In fact, he added: “Right now people are converting USD to secure RTGS.”
The auction, introduced on 23 June, and the interbank market now handle the majority of foreign exchange transactions using the auction rate as a guide.
He said the informal market, which relied on the black market, is much smaller than before and could be down by two thirds.
A business executive in Bulawayo confirmed that firms were scrambling for Zimbabwe dollars as there was a shortage of cash, RTGS and mobile money.
He also said businesses might have to review their prices in local currency as it continued to strengthen against the United States dollar because they could soon price themselves out of the market.
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