Early in April Zimbabweans reacted with disdain as the parallel market rate moved to depreciate the Zimbabwean dollar by roughly 15% in the first week of April from around 260 to 300 Zimbabwean dollars for a single US dollar. The Apex bank’s Monetary Policy Committee came together to release a host of contractionary measures to contain this depreciation and its impact on inflation in the country. Unfortunately, the measures were not accepted by the economy as the Zimbabwean dollar suffered further depreciation with people now paying as much as 400 Zimbabwean dollars for a single US dollar on the parallel market.
The RBZ released a slew of contractionary measures in the hope of containing the depreciation of the Zimbabwean dollar including adjusting borrowing rates upwards and limiting the movement of money but it counted for nought. The depreciation of the Zimbabwean dollar around the end of the first quarter has become customary with the school of thought that government quasi-fiscal activities around crop harvest time lead to money supply growth in Zimbabwean dollars. The Confederation of Zimbabwe Industries is engaged in a war of words with the Reserve Bank and the Government of Zimbabwe at large over making such statements.
The CZI engagement paper is a detailed and lengthy document. Released 22 April 2022 it highlights what the CZI as an industry have observed when it comes to the monetary space in Zimbabwe and the effect thereof on exchange rates and inflation. You can read the full document here but the key highlights are the failure of the auction system, evidenced by the widening gap with the parallel market exchange rate and the recommendation to free the exchange rate and focus on controlling the money supply.
Government talks tough
Sections of the government from the highest office in the land to the RBZ have talked tough on the parallel market. The RBZ went to great lengths to ensure people that money, particularly foreign currency in banks is safe from a bank run. A bank run is a term for a situation where depositors remove their money from banks en masse. Sections of the government have promised new measures to come to control the parallel market exchange rate though we have heard all this before.