Global Courant
The International Monetary Fund (IMF) is urging Zimbabwe to take additional steps in currency reform as the country fails to fully free-float its local currency. The IMF stressed in a response to email inquiries that the credibility and effectiveness of recent Zimbabwean measures would depend on a prompt commitment to liberalize the foreign exchange market and move to a market-based pricing system.
Last week, the Reserve Bank of Zimbabwe announced an easing of restrictions on the foreign exchange market, declaring its intention to use a “market-determined” exchange rate rather than relying solely on weekly auctions. This move was designed to ease the volatility that has plagued the economy in recent weeks. Since then, stock prices have risen by more than 600% and inflation is rising due to higher prices for essential goods.
However, the central bank’s actions did not result in a full free float for the Zimbabwean dollar. To create an interbank market, the bank stated that it would maintain certain parameters, such as setting a price floor for dollar sales and regulating the sale of foreign currency to banks for later sale to their customers.
The IMF welcomed recent efforts to create an interbank market, but noted that the parallel exchange rate, which mirrors the black market, continues to fall. The Zimbabwean dollar is currently trading at a rate of 5,487 per US dollar on the interbank market, while black market rates ranged between 6,200 and 6,700 Zimbabwean dollars per dollar on Monday, according to exchange rate tracking websites such as ZimPriceCheck.com and ZimRates. com.
The IMF believes that if authorities accelerate foreign exchange liberalization, address the quasi-fiscal operations of the Reserve Bank of Zimbabwe to alleviate liquidity pressures and maintain appropriately tight monetary policies, official and unofficial exchange rates could converge . These policies are crucial for restoring macroeconomic stability, ensuring social stability and achieving long-term results.
In summary, the IMF urges Zimbabwe to take additional steps towards currency reform, particularly the liberalization of the foreign exchange market and resolving liquidity pressures caused by the quasi-fiscal operations of the Reserve Bank of Zimbabwe. Zimbabwe can work towards achieving exchange rate convergence, restoring macroeconomic stability and ensuring social harmony by doing so.
Main image: Newsday Zimbabwe
