(Bloomberg) -- Zimbabwe won’t allow the street rate of the ZiG to determine where its official rate should be as it isn’t driven by market fundamentals, a senior Treasury official said.
The ZiG weakened 0.1% on Friday to be quoted at 26.85 per dollar on the official market, compared with between 40 to 50 per dollar on the parallel market, and has already been devalued once since its debut on April 5 to narrow the gap.
“Convergence is out of the question,” said George Guvamatanga, the secretary for finance and economic development in an interview. “From a policy perspective, we have never aimed for convergence.”
The street market rate “isn’t linked to any economic fundamentals and thrives on speculation,” Guvamatanga said.
You can follow Bloomberg’s reporting on Africa on WhatsApp. Sign up here.
He likened any attempt to bring the rates together as similar to trying to converge an elephant and a mouse.
The formal market is estimated at between $8 billion and $10 billion and handles much “bigger transactions” in comparison to the parallel market, which is valued at $500 million, he said.
“People often give the parallel market more value than it actually has,” said Guvamatanga.
He attributed the 43% devaluation in the ZiG, short for Zimbabwe Gold, on Sept. 27 to “dislocation which was there in the market,” and not to trying to converge the rates. Exporters — which generate most of the foreign-exchange — were the most disadvantaged by the widening gap in the rates.
Under the nation’s laws, exporters surrender 25% of export earnings to the central bank at the official rate. Miners including Zimplats Holdings Ltd., a local unit of Impala Platinum Ltd. are among the nation’s major exporters.
The Treasury expects recent central bank interventions including raising interest rates to 35% from 20% and increasing lenders’ statutory reserves to prop up the currency, Guvamatanga said.
A fair ZiG exchange rate would be anything between 11 to 32 per dollar, according to Guvamatanga. “We actually expect the ZiG to strengthen.”
The ZiG is the southern African nation’s sixth attempt to sustain a local currency since 2009. Previous efforts at having a stable local currency were sunk by hyperinflation caused by the government printing money to finance spending.
Sign up for the twice-weekly Next Africa newsletter for the latest business and economic news from the continent.
(Updates with latest currency moves in second paragraph.)
©2024 Bloomberg L.P.