THE government is leaning towards pegging the Zimbabwe dollar currency to the South African rand, with Finance minister Mthuli Ncube saying this would make the local currency more competitive in the region.
Ncube made the disclosure to NewsDay on the sidelines of the anti-sanctions march at the National Sports Stadium on Friday, while responding to a question on whether the loss of confidence in the Zimbabwe dollar was behind skyrocketing prices.
“As of now, the Zimdollar is trading 1:1 with the South African rand, so the Zimdollar is competitive in the international market and other currencies in the region like the Botswana pula, Namibian dollar and Mozambique metical,” Ncube said.
The southern African nation merged its electronic dollars and surrogate bond notes into a transitional currency called the Real Time Gross Settlement (RTGS) dollar in February, and also scrapped the highly controversial 1:1 peg to the United States dollar.
In June, it then made the RTGS currency the country’s sole legal tender and renamed it the Zimbabwe dollar, ending a decade of dollarisation.
Government is currently printing new notes for the new currency, which it hopes to have by end of the year.
But the local currency has seen its value sliding against the greenback, from 2,5 to the dollar on the official interbank market when it was introduced on February 22 this year to 15,59 yesterday.
On the black market yesterday, it traded at 22 to the US dollar, while the Old Mutual Implied Rate, used by international companies, was at 24,01.
Ncube said he was more concerned with stabilising the local currency so that it maintains parity with the rand and other currencies in the region.
“What we need to do now is to stabilise it to a level where it is competitive with other currencies in the region,” he said.
“To maintain the value of the new currency as government, we make sure that the budget deficit is under control because if we lose control, we end up printing more money to fund government activities.
“We also have to make sure that money supply is kept under control to make sure that it does not rise. We should raise productivity to improve on exports to gain more foreign currency.”
Ncube did not say if government was considering joining the Common Monetary Area (CMA), which links South Africa, Namibia, Lesotho and Eswatini (formerly Swaziland) into a monetary union anchored by the rand.
The rand is legal tender in all the four countries, although Namibia, Eswatini and Lesotho have their own currencies.
President Emmerson Mnangagwa early this year said Zimbabwe had in 2008 failed to meet conditions for admission into the CMA.
In September, after a massive sell-off of the local Zimbabwe dollar that saw the exchange rate fall from 11 to 23 to the US dollar on the black market, and the interbank market desperately trying to catch up, the central bank swiftly abandoned the idea of letting the market determine the exchange rate on September 27 through exchange control directive RU131/2019, adopting, instead, a managed floating exchange rate.
It has maintained the exchange rate between 15,3 and 15,59 to the US dollar since then, tracing the rand’s performance against the greenback.
Despite the lack of confidence in the local currency, which has seen businesses pegging prices in US dollars, Ncube was adamant that Zimbabwe needed its own currency to revive its economy.
“There is no country that can develop using other countries’ money without its own currency and that is why we have decided to have our own currency. We should all support it because it is very important. As citizens, you should trust us on this,” he said.
“The point is to bring more cash through the new notes. It is not really new currency because we already have a currency, it is just cash that we are bringing about to solve the cash crisis. We are just going to convert the RTGS into cash so that the money supply does not rise.”
Zimbabwe abandoned its local currency after inflation topped 500 billion percent in December 2008, and adopted a basket of foreign currencies anchored by the United States dollar in February 2009.
The country then briefly enjoyed economic stability, characterised by stable prices and deflation.
But since 2016, the country has suffered shortages of cash, and the reintroduction of a local currency has led to fears of a return to the hyperinflation era, with inflation at 353,32% last month.