A Zimbabwean business lobby group, the Zimbabwe Confederation of Industries (CZI), has warned that the country’s currency could collapse if authorities fail to “implement the necessary policy measures to support it.”
The central bank’s approach destabilizing the market
In a letter viewed by Bitcoin.com News, lobby group chairman Kurai Matsheza explained that the tough approach to the forex challenge would be destabilizing for markets. To ensure that this challenge is fully met, the CZI boss insists that the measures, which were agreed upon by the parties who attended a consultative meeting, must be given time to take effect.
After the collapse of the Zimdollar in 2008, Zimbabwe switched to a multi-currency system in which the US dollar dominated. However, in 2019 the Zimbabwe dollar or ZWL, which was then at par with the USD, was reintroduced.
Yet almost two years later, the ZWL / USD exchange rate is now 88: 1 in the official market and over 170: 1 in the parallel market. Therefore, in order to halt the continued depreciation of the ZWL in the parallel market, the Zimbabwean authorities launched a blitz that saw law enforcement arrest suspected foreign currency traffickers. At the same time, the central bank has blacklisted individuals accused of aggravating the Zimdollar woes.
However, it was this operation against black market currency traders that prompted CZI’s boss to write the letter expressing his organization’s concern over this approach. He said:
When policies fail, we must not stop people, we must correct policies to make them more effective.
He added that the arrests were only causing unnecessary panic in the market and eroding consumer confidence in government policies.
The Dutch auction system
Meanwhile, Matsheza insists that only “a true Dutch auction would fulfill the function of price discovery and pave the way for a more liberal exchange rate regime.” The central bank introduced this auction system as a means of managing currency allocation.
However, some businesses and individuals complained that it took them several months to get their allowance. These long delays have forced companies to seek the resource in the parallel market where the USD is easily found. Although the CZI is not yet calling for an end to this auction system, Matsheza is still calling on the authorities to ensure that the auction system is run “in the true spirit of the Dutch auction system”.
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