At least there is something to smile about as far as the foreign currency exchange rate is concerned. With the Monetary Policy Statement (MPS) introducing the inter bank foreign currency exchange market which will determine exchange rates going forward, the ordinary Zimbabwean was not sure what the end result would be. Gladly, the black-market rates are going down with each passing day.
Before the MPS was announced, the parallel market rates had shot up to 1:4.1 between the USD and the RTGS Dollar. The official government position was a rather fictitious 1:1 although the banks did not have the forex to trade. There was no official authority to trade anyway. The MPS authorised banks and Bureaux de Change to trade at the inter bank forex market and as a result the Reserve Bank of Zimbabwe (RBZ) and the banks’ forex dealers agreed to start at 1:2.5 when trading started on 22nd February 2019. This has seen the parallel market rate tumbling to around 1:3.6 as more and more formal businesses can now access forex at a discount through the official channels. Although parallel market dealers will feel hard done by this development, those with access to the official market are happier now. Now the benefits are spilling over to the parallel market with less demand for forex there. The truth is that the only reliable source of foreign currency for many people still remains the parallel market because the banks will require certain paperwork which the general public may not be able to produce.
Will this last?
The obvious question is whether this downward trend is going to last. The answer to that question is not that simple and straight forward. Those in the know say that as long as the RBZ ensures that there is enough supply of foreign currency, rates will continue to drop and will stabilise at some point. This is the reason why RBZ Governor Dr John Mangudya revealed that foreign lines of credit will be sought to ensure adequate forex supply. If this does not happen, the banks and Bureaux de Change will soon run out of the greenback and the parallel market rates are likely to rise again due to that scarcity.
Furthermore, we can’t help but look back at the situation that obtained when the Bond notes and coins were introduced. They were at par with the greenback but they began to lose value as cash vanished from the banks. This is what has brought us where we are now. Despite the fact that trading on the parallel market became illegal, attracting up to 10 years in jail, businesses and individuals had no choice but to trade there because that is the only place where you could access foreign currency without the need to explain why you need the money. Money was always there on the black market. The RBZ allocations were rather secretive and elitist. There was not enough forex at the central bank to quench the demand anyway.
Economist will throw around different scenarios as we move forward. For now, a lower exchange rate is good news for the already suffering general public. Whether or not the parallel market will die down still remains to be seen.