ZIMBABWE’S fixed currency peg, adopted in March, has become the latest flashpoint between central bank Governor John Mangudya and Finance Minister Mthuli Ncube, people familiar with the situation said.
Mangudya unilaterally imposed the peg of 25 to the U.S. dollar as the country entered a coronavirus lockdown in March, ignoring the recommendations of the Monetary Policy Committee and Ncube, the people said, asking not to be identified as the dispute hasn’t been publicly disclosed. Prior to the central bank governor’s decision, a moving peg dictated by the market had been used.
The introduction of the peg came without warning and has further strained relations between Mangudya and Ncube, who have disagreed over a range of policy issues, the people said. It comes as black market rates for the Zimbabwe dollar range between 75 and 90 per unit of the U.S. currency and the country’s worst economic crisis since at least 2008 deepens.
That’s raised pressure on Mangudya and Ncube, who were last week called to testify to the politburo of the ruling Zimbabwe African National Union-Patriotic Front over why the economy was deteriorating, the Zimbabwe Independent newspaper said. Inflation in April surged to 766% and shortages of fuel, foreign currency and power are commonplace.
Mangudya and Ncube didn’t answer calls made to their mobile phone or respond to text messages. Calls to the deputy finance minister and finance secretary weren’t answered.
The widening gap between the official and black market currency rates is pushing companies to use illegal means to source foreign currency. In a June 8 statement after a meeting of the central bank’s monetary policy committee, Mangudya said the committee had “expressed serious concern over the continued deterioration in the exchange rates that were widely being used by the private sector.”
Industry associations representing tobacco and gold miners, two key exports, have asked for an urgent review of the official currency peg, which is used to pay producers the local unit equivalent of their earnings. They have cited threats to their industries’ viability due to mounting debts and a decline in revenue.
Ncube, who also heads a currency task-force, will at the end of this week meet with President Emmerson Mnangagwa to seek his approval to free float the local unit and drop the currency peg, the people said.
Zimbabwe reintroduced its own currency last year after a 10-years hiatus, caused by the scrapping of the Zimbabwe dollar in 2009 after a bout of hyperinflation.