Zimbabwe’s currency turmoil on the parallel market over the past three weeks, which has been fueled by year-end demand, is “temporary,” the country’s central bank governor said.
The current wave of exchange-rate volatility was driven by holders of an increased supply of the local currency rushing to buy US dollars at the end of the year, said John Mangudya. Contributing factors included bonuses paid to civil servants and supplier payments, he said.
“People think it’s an exchange-rate issue, but it’s largely confidence-related,” the governor said Wednesday in an interview. “The activity which we have seen in the parallel market in the last three to four weeks is a response to the desire to hold foreign currency.”
Zimbabwe has been struggling to stabilize its currency since its return into circulation in 2019. The local unit has lost 30% of its value against the dollar on the official market this year and more than 40% on the parallel market.
The volatility has led citizens to favour the US dollar to pay for everything from food to fuel. It’s used in about 80% of all transactions, with the balance done in Zimbabwe dollars, which stokes inflation as prices are heavily influenced by exchange-rate movements, said Mangudya. Annual inflation quickened for a second straight month in December to 26.5% even after the statistics office adjusted its price measure to better account for the use of dollars.
“We have economic stability, but currency instability,” he said.
The governor, whose term ends in April, urged businesses to support the local currency and refrain from fueling market instability. Most businesses vie for dollar sales to boost their greenback revenues.
Mangudya dismissed concerns from the likes of Imara Asset Management, which oversees more than $100 million, that the currency woes could worsen because of a decline in inflows of dollars from lower global commodity prices. The resource-rich nation depends on mining for 85% of its foreign exchange.
“I don’t share the same perspective,” he said. “We have new export minerals in the basket such as lithium which weren’t there before. If we earn $100 million from lithium it can help compensate for decreases in other commodities.”