It’s taken only 11 weeks to achieve. The Zimbabwean dollar for the first time appreciated on the Foreign Currency Auction market. The currency appreciated 0.09%, the smallest movement in any direction that the currency has made since the start of the auction system. So naturally, a few questions have arisen; why now? Is this stability? What comes next? Let’s look at the stats from the auction system to get the deeper meaning of what we have been witnessing.
The RBZ continues with their confusing distinction between SMEs and others on the foreign currency auction. Separating them is an academic exercise at best, at the end of the day it is all the same money. Amongst the highlights were a fourth straight week of no foreign currency deficit which is one of the most positive signs in this market. The lowest bid rate and the lowest accepted bid rate were also joined at the hip for a fourth consecutive week. While recent results show a steadying of the ship one thing Zimbabweans are all too familiar with is a rapid and drastic change. So there will be a lot of murmurs and whispers as to whether this is real or the calm before the storm.
It’s the money supply
One thing that is often overlooked, perhaps by design, is the real cause of the depreciation of our currency. While illicit dealings, parallel exchange rates and import pricing all play a part in our troubles the cause has undoubtedly been the money supply growth. As the image extracted from the Reserve bank’s Reserve Money Update shows, reserve money (in bold) is on the decline. Overall money supply declined in both June and July and the preliminary estimates suggest August will continue the trend. The parallel market to has responded to this pattern with rates easing albeit with other factors adding to this.
Is this stability?
That is really hard to say. The recent results are certainly encouraging but we are well aware of the precarious situation in the economy. While the Reserve bank has found a way to provide some foreign currency buyers the system is nowhere near to catering for all of the market. Those who are not catered to will have to turn to or rather keep relying on the parallel market. It’s also worth noting that with Covid-19 induced lockdown still operating in some sort of capacity there is reduced economic activity easing the demand for foreign currency. Would the RBZ be able to keep this up at full steam?
With warranted scepticism, Zimbabweans will continue to watch the auction system weekly for what it presents. The apparent stabilising of the rate will take some time before we see it reflected in what matters to Zimbabweans, the prices we encounter. It has hard to celebrate a victory without impact.