Behavioural Legacy Issues Driving Black Market Rate - Minister

Finance and Economic Development Deputy Minister Clemence Chiduwa has said the public has lost confidence in the Zimbabwe dollar therefore people are converting their earnings to US dollars on the black market to avoid a repeat of 2008 where hyperinflation decimated their savings.

Speaking in Parliament on Thursday, Chiduwa said demand for US dollars has caused the exchange rate to skyrocket on the parallel market and this has also pushed up prices as traders follow the black market rate. Said Chiduwa:

What really is driving the black market rate? These are behavioural legacy issues to say we encountered this in 2008 and we are using the US dollar as a store of value. The moment someone gets a Zimbabwe dollar, they immediately change it to the US dollar.

People are saying the moment I get money, I should convert it to US dollars, but because of benchmark pricing, it has filtered to pricing models in the shops where you see that the pricing model is now following the parallel market rate.

As a result of that, it is now affecting the livelihoods of our people. We have said in order to cushion our people as we try to get long term solutions, we have come up with the payment that we are now giving to civil servants in US dollars.

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We are equally worried about the movement in the exchange rate. We have said before that the movement in the exchange rate, especially on the parallel market, is not linked to fundamentals.

In June 2019, the Government abandoned the multi-currency regime which had been in place since 2009 and re-introduced the Zimbabwe dollar.

However, economic commentators criticised the move saying the Government rushed the reintroduction of the local currency without necessary economic reforms and adequate foreign currency reserves.

The Zimbabwe dollar is trading at US$1 to $135 on the Reserve Bank of Zimbabwe (RBZ) auction system but on the parallel market, the rate is roughly US$1 to $250.

More: NewsDay