Zimbabwe has foreign currency bank balances of US$2 billion but the exchange rate is volatile because of people’s expectations.
This was said by the Deputy Minister of Finance Clemence Chiduwa in response to a question from Senator Morgen Komichi.
Komichi had asked what the government was doing to go back to the use of local currency since 80% of the transactions were now in United Srates dollars and only 20% in local currency.
Chiduwa said people must first of all be comfortable using the multi-currency.
“We can only reach that stage when we reach a certain level of stability. When our exchange rate stabilises, if our currency does not fluctuate against the US dollars, we have reached currency stability,” he said.
“So, for us to reach a stable exchange rate, we need to produce. Production is important for it will give us exports and foreign currency. It will give us local currency in abundance.
“Our market relates to the auction but in the long term, we need to allow demand and supply, the basics of economies of scale, to determine the economy. When our exchange rate is determined by the market, there is no manipulation and there is no preference of which currency because the true value of the currency will be determined by the market.
“The challenge that we face right now is that there is a parallel market which is being influenced by expectations of people. Our fundamentals are good because we have a surplus.
“Our Nostro balance is around US$2 billion. If we have US$2 billion Nostro balances then there is no reason for us to say that our currency is volatile. So we want to reach that stage where there is currency stability. When we reach such stability, people will be use whatever currency whether US or RTGs. We need to focus on production.”
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