Fundamentals to support strong local currency in place: Fin Min

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Harare (New Ziana) – The government is satisfied that it has put in place strong economic fundamentals to support the Zimbabwe dollar and is now focusing on ending arbitrage opportunities and speculative behaviour driving the depreciation of the local currency, a Cabinet Minister has said.

A renewed assault on the domestic tender has seen the Zimbabwe Dollar shed considerable value in recent months both on the formal and informal markets, leading to calls for its total abandonment.

According to results of Tuesday’s Reserve Bank of Zimbabwe auction, the local unit is trading at ZWL338: USD1, while on the parallel market it is going for anything between ZW$500-ZW$550 against the greenback.

But, Finance and Economic Development Minister Professor Mthuli Ncube told a currency indaba convened by the Political Actors Dialogue that the loss of value of the local currency was being driven by indiscipline within the market.

“When you look at the fundamentals, they are strong in the sense of the deficit position, fiscal position and the monetary policy position and when we consider the current account situation as well,” he said.

“We should end the year again with a current account surplus with more inflows than outflows into the economy. So the fundamentals are strong, there is nothing wrong with the fundamentals, it is really the arbitrage and speculative behaviour that we see in the market, and we have taken some measures to deal with that.”

The assault on the local currency is manifesting through the current wave of price hikes of basic goods and commodities.

The government also believes that the strong headwinds confronting the local currency are being caused by exchange rate manipulation through speculative lending by banks to both individuals and companies.

Recent reports indicate that four banks have been placed under surveillance by the RBZ Financial Intelligence Unit on suspicions of fueling illegal foreign currency dealings.

The investigations by the FIU will focus on banks alleged to be injecting excess liquidity into the market, precipitating the fall of the local currency, and in turn price hikes

Meanwhile, Ncube reaffirmed the continued use of the dual currency system in Zimbabwe in line with the five-year de-dollarisation plan which the government announced when it re-introduced the local currency.

“We cannot just have the USD circulating because that will wipe out the balance sheets of companies. If you do that it will create a very dangerous situation. You will also wipe out the pension balances so we do not want to go there, we have been there before. Here we are trying to compensate citizens for losses (incurred when the country adopted the multi-currency regime) and people want to go back there.”

In an effort to encourage wider use of the local currency, the Government allowed miners to pay up to 50 percent of their royalties in Zimbabwe dollars, while all duties and taxes due on the importation of designated motor vehicles are to also be paid in ZWL up to a limit of 50 percent.
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