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New Notes Push Exchange Rate Spiral

The parallel market exchange rate has taken a rapid upward spiral since the Reserve Bank of Zimbabwe (RBZ) announced the introduction of the new $ 10 and $ 20 notes as exchange rate movers respond to the increase in cash on circulation, 263Chat Business has established.

The local currency (ZWL) has tumbled almost 20 percent against the American dollar (USD) on the parallel market since Thursday last week when the Central Bank announced issuance of new notes this week.

As of this morning, the parallel market traded the Zimbabwean dollar at ZWL$60 against the USD on bank transfers and on state-owned mobile money platform-OneMoney while on the Ecocash platform it traded at ZWL$ 58.

There are fears the trend in exchange rate is likely to persist in the two-week-run up to first week of June when the $ 20 notes are set to start circulating.

The Central Bank has however stressed that the new notes are not an increase in money supply but a mere exchange of the existing RTGS values for hard cash.

Nevertheless, the market is skeptical of the Bank’s motives given its track record of dishonesty when it comes to money supply.

“What we see in the black market is a situation where by the exchange rate movements are primarily moved by speculative tendencies rather than any other factor. The movement has to do with what market movers predict as more money printed means there is enough to buy as many USD so they then also increase the amount of zim-dollars needed to purchase USD,” economist, Victor Bhoroma said.

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On the flip-side, the official rate on the interbank foreign exchange market remains stagnant at ZWL$ 25 against the USD.

This has caused massive inefficiencies in the interbank operations, analysts have warned monetary authorities.

Meanwhile the exchange rate movements on the parallel market have manifested in inflation taking another wave upward.

Year-on-year inflation is estimated to be now hovering close to the 1000 percent mark despite a rather conservative figure of 676 percent released by government in March this year.

Authorities say the new notes are meant to mitigate cash shortages in the economy and the Bank is seeking to at least reach the 10-15 percent threshold of broad money supply in hard cash as per global standards to sustain cash balance.

“It’s a good step to introduce new notes because currently we are at around 5 percent threshold of cash supply so we need to push it to around 10 percent to liquefy the economy,” economic analyst, Pepukai Chivore said.

“The problem however lies in lack of public trust in policy pronouncements done by government. The issue is about trust because it’s lacking from all economic agents,” he added.

The RBZ has injected over ZWL$ 1 billion cash into economy since September last year yet cash challenges persist giving enterprising money changers opportunities to set high premiums on cash.

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