Zimbabwe gets new foreign currency trading system

Harare — Cash-strapped Zimbabwe has introduced a new foreign currency trading regime again as the country battles to contain runaway inflation and an unsteady currency.

The country is in the grips of its worst economic crisis in a decade and is also grappling with shortages of basic foods, medicines, fuel, electricity and foreign currency. Unemployment has remained high with close to 90% of the population without jobs

A lack of confidence in the local currency has seen Zimbabwean businesses pegging prices in US dollars even as the central bank maintains that its efforts to move from the multi-currency system have yielded positive results.

Last year, Zimbabwe re-introduced its local currency after 10 years of using the multi-currency system that was dominated by the US dollar and the rand. The Zimbabwean dollar, which was introduced last year, is currently trading at close to 40 to the US dollar from 2.50 when it was introduced last year.

Most of Zimbabwe’s foreign currency is traded on the black market and authorities are hoping the new measures will see more money transacting on official platforms.

On Wednesday, finance minister Mthuli Ncube told journalists that the new foreign currency trading system will come into effect immediately and will be based on what he called the “Reuters system”, which allows foreign currency to be traded freely among banks.

Ncube acknowledged that the exchange rate volatility has become unsustainable as it is contributing to high inflation.

“Zimbabwe has had no transparent and effective foreign exchange trading platform for a long time. Consequently, official rates have not been effectively determined, while a thriving parallel market has developed,” Ncube conceded.

Ncube said that under the new system, trading rules for the bureaux de change system will be liberalised so that they can conduct broader transactions. The Reserve Bank of Zimbabwe (RBZ) is expected to be a significant player by feeding funds into the new market, while all the country’s banks have been invited to be part of the market

Ncube also announced that he is setting up a currency stabilisation taskforce to manage the fall of the local currency against the US dollar.

“This [taskforce] will be spearheaded by the finance ministry and the RBZ, and will include members of the monetary policy committee and the presidential advisory council,” he said.

The finance minister will chair the taskforce that will meet at least once a week to review the conditions in the market through systemic monitoring of inflation and exchange rates.