Illegal money changers pose while exchanging a new Zimbabwe bond note, left, and US dollar notes in the capital Harare. Picture: REUTERS
Illegal money changers pose while exchanging a new Zimbabwe bond note, left, and US dollar notes in the capital Harare. Picture: REUTERS

Harare — Zimbabwe’s central bank on Wednesday ditched pegging its currency at 1:1 with the US dollar to pave the way for the  market to determine the local currency’s value.

The move effectively devalued the local bond note surrogate currency, as reported by Business Day on Monday.

Officially the Reserve Bank of Zimbabwe pegged the US dollar and the quasi-bond currency at par, but the controversial local currency traded at 1:3.5 on the popular black market.

Presenting the country’s monetary policy statement on Wednesday  Reserve Bank governor John Mangudya said the central bank had been guided by the  black market rates in making the latest move.

“We have basically formalised what is already happening in the black market, we have ensured that no one goes to buy money from the parallel market. It’s a formal way of trading in foreign currency," he said.

“After taking account of the implications and putting in place safeguards to maintain stability in the forex market, the Bank is with immediate effect establishing an inter-bank foreign exchange market for Zimbabwe to formalise the trading of foreign currency and bond notes with US dollars and other currencies on a willing-buyer-willing-seller basis through banks and bureaux de change…”

Mangudya said the move would allow importers and exporters to trade its surrogate bond notes and other foreign currencies.

He said the move had been taken after contributions from the business community, bankers, academia, the media and members of the public.

Following the announcement there were fears that the devaluing of the currency would lead to another economic upheaval that would cause a hike in prices of goods.

Recent fuel price hikes sparked violent  protests that left more than 17 people dead in a police and army crackdown.

Mangudya sought to allay fears of a pricing implosion, saying lines of credit had been secured to ensure adequate supply of foreign currency for the productive sectors of the economy.

He said the use of the bond notes for domestic transactions would eliminate the existence of the multi pricing system  that had become prevalent in the country.

Service providers charged different prices for US dollars, the bond notes and the electronic money version of the bond notes.

“In this regard, prices should remain at their current levels and⁄or to start to decline in sympathy with the stability in the exchange rate given that the current monetary balances have not be changed,” he said.

“The Bank has arranged sufficient lines of credit to enable it to maintain adequate foreign currency to underpin the exchange market.”

Commenting on the new measures, economist and MDC secretary for economic affairs Dr Tapiwa Mashakada said: “My reading of the monetary policy statement is that Zimbabwe now has a virtual local currency called ‘RTGS Dollar’. This is a Zim-dollar by any means. The local unit will be determined by the interbank market of forex and forex bureaux,” he said.

Zimbabwe ditched the Zim-dollar in 2009 after it reached 89,7 sextillion to the dollar with the highest denomination of 100-trillion buying only a loaf of bread.

The trading rates will be published daily in banking halls and the media.

“The economy has de-dollarised cleverly. US dollars are now foreign currency. My prediction has come true. Zimbabwe now has a sovereign currency called ‘RTGS  dollars’, which is a euphemism for Zim-dollars. It’s like saying you eat bacon but not pork,”  Mashakada said.

“The domestic currency has bounced back without addressing the key fundamentals,” he added.