A crackdown by authorities in Zimbabwe to support the local currency and fight inflation has increased the use of US dollars there, according to the country’s oldest brokerage.
“Ironically, the authorities’ clampdown on Zimbabwe dollar payments created such a squeeze that it has had the unintended consequence of driving dollarisation at a faster pace,” Imara Asset Management CEO John Legat said in the Harare-based company’s latest quarterly investment notes to clients.
Banks are now offering US dollar loans and listed companies carry out more transactions in the greenback as they reel from a shortage of Zimbabwe dollars. “Even government is increasingly using US dollars for its own payments,” he said.
Since May, authorities have adopted a series of measures, including raising the benchmark interest rate to 200%, introducing gold coins, imposing taxes on capital markets and halting payments to government contractors and suppliers to try to reduce money supply. Those actions dried up excess liquidity and succeeded in bringing the official local currency rate in line with the parallel rate.
The government has struggled to successfully reintroduce its currency into the economy after abandoning its unit for more than a decade because of hyperinflation in the late 2010s.
Zimbabwe dollar transactions have nearly halved in volume and value terms since the end of last year on banking and mobile-banking platforms, according to data from the central bank.
The value processed by the National Payments System was $1.9bn from 36-million transactions in September. That compares with a monthly average of $4.2bn last year from about 120-million monthly transactions.
An increase in the use of US dollars does, however, mean companies have sufficient foreign exchange to import capital equipment without using the central bank auction, alleviating an obstacle to trade that other countries have faced because of a strong US currency.
More stories like this are available on bloomberg.com
Zimbabwe’s currency crackdown spurs wider use of US dollars
Image: Bloomberg
A crackdown by authorities in Zimbabwe to support the local currency and fight inflation has increased the use of US dollars there, according to the country’s oldest brokerage.
“Ironically, the authorities’ clampdown on Zimbabwe dollar payments created such a squeeze that it has had the unintended consequence of driving dollarisation at a faster pace,” Imara Asset Management CEO John Legat said in the Harare-based company’s latest quarterly investment notes to clients.
Banks are now offering US dollar loans and listed companies carry out more transactions in the greenback as they reel from a shortage of Zimbabwe dollars. “Even government is increasingly using US dollars for its own payments,” he said.
Since May, authorities have adopted a series of measures, including raising the benchmark interest rate to 200%, introducing gold coins, imposing taxes on capital markets and halting payments to government contractors and suppliers to try to reduce money supply. Those actions dried up excess liquidity and succeeded in bringing the official local currency rate in line with the parallel rate.
The government has struggled to successfully reintroduce its currency into the economy after abandoning its unit for more than a decade because of hyperinflation in the late 2010s.
Zimbabwe dollar transactions have nearly halved in volume and value terms since the end of last year on banking and mobile-banking platforms, according to data from the central bank.
The value processed by the National Payments System was $1.9bn from 36-million transactions in September. That compares with a monthly average of $4.2bn last year from about 120-million monthly transactions.
An increase in the use of US dollars does, however, mean companies have sufficient foreign exchange to import capital equipment without using the central bank auction, alleviating an obstacle to trade that other countries have faced because of a strong US currency.
More stories like this are available on bloomberg.com
READ MORE:
Zim government entities, businesses abandon local currency for US dollar
Zimbabwe lifts ban on bank lending it imposed to stop currency slide
Zim dollar ‘is imploding again and it’s the government’s fault’
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