‘Salvage’ measures to resuscitate local currency – Gwanyanya

By Simbarashe Musaki and Tendai Dune
THE government’s introduction of a dual currency pricing system, coupled with the foreign currency exchange auction is ‘salvage’ measures in response to great market volatilities, contrary to layman’s view that authorities have dumped the Zimbabwe dollar, an economic expert has clarified.
Renowned economic expert, Persistence Gwanyanya in an exclusive interview with The Business Connect made it clear that salvage measures are meant to resuscitate the local currency, succumbing to depreciation, prior to delving on how paying civil servants’ allowances in United States dollars helps in stabilizing the Zimbabwe dollar.
“The policymaker is not dumping the local currency, but trying to revive the currency which is currently facing significant pressures from depreciation. Dollarization is costly and unaffordable, and only offered on a short term relief and may not guarantee stability. So, dual currency and the auction system are a salvage intervention, since the market volatilities have gotten to extreme levels, as people were rejecting the Zimbabwe dollar.
“So, the payment of civil servants’ allowances in United States dollars is a measure of stabilizing their salary, which is one of the major factors that was causing rejection of our currency. That, supported with a dual pricing system would mean at a transactional level where local currency was being less preferred, it would be preferred for transactional purposes. If someone gets into a shop having an option of using either of the two currencies, assuming the exchange rate is acceptable – obviously – one will opt using the Zimbabwe dollar, contrary to what was happening previously.
“So, if you prefer to use the Zimbabwe dollar, it means that the business community would now have to accept it only if there is home for that Zimbabwe dollar. So, the home for that Zimbabwe dollar is made possible by the auction system to the extent that you can now go with your Zimbabwe dollar and exchange it for United States dollars in the auction system,” said Gwanyanya.
He added that the auction system is an efficient exchange market for the Zimbabwe and United States dollar, which can help to lubricate the local currency leading to stability.
He said, “Local currency is salvaged by creating its demand. You create demand for the Zimbabwe dollar sustainably by also creating an efficient exchange market for the Zimbabwe dollar and United States dollar, which is the auction system. So, as that happens, if the auction system improves it then means that the holders of foreign currency who are now holding it in excess of a billion, if they are happy with the stability of currency they would now be able to release that money in the system. So we are now back to stability, the system is lubricated by the US dollar.”
Since the introduction of the foreign currency exchange auction by the Reserve Bank of Zimbabwe – 3 weeks ago – exchange rates have been somewhat stable, compared to the period where the central bank imposed the fixed exchange rate, which according to economic analysts fueled the parallel market, as it was offering favourable exchange rates that some deemed, market-driven.

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