By- Inflation has humbled President Emerson Mnangagwa and his Finance minister, Mthuli Ncube and forced them to revert to the use of the United States dollar.
Mthuli admitted yesterday and said they will enact legislation to entrench the multicurrency system, which makes the US and Zimbabwe dollars legal tender for all local transactions.
He also indicated that the Government would craft legislation to support the use of the willing-buyer willing-seller exchange rate market price discovery in the setting of prices on the local market.
Ncube said the Government had recently taken significant steps to stabilise the Zimbabwe dollar exchange rate as announced by President Mnangagwa and other fiscal and monetary policy measures.
He said the confidence deficit among economic agents as a result of the past hyperinflation experiences had resulted in increased demand for US dollars as a store of value.
Ncube said lack of confidence and high inflation expectations had incentivised economic agents to engage in parallel market bench-marking of prices and skewed preference of US dollar for commercial transactions and forward exchange rate pricing.
By so doing they were creating a vicious cycle of increasing prices, which is self-fulfilling, and is generating higher month-to-month levels of inflation as well as fuelling adverse inflation expectations.
“Based on the above economic facts, the Government is putting in place the following additional measures to build further confidence in the economy. One, entrenching the multicurrency system into law.
“Government has clearly stated its intention of maintaining a multicurrency system based on the dual use of the US dollar and the Zimbabwe dollar in the main.
“However, the market’s lack of confidence in the multicurrency system is causing us challenges and I want to assure you that this multicurrency system is here to stay into the foreseeable future,” he said.
“And to eliminate any speculation and arbitrage-based activities, Government has decided to embed the multicurrency system and continue to use it or to make sure that the US dollar is used as a transaction currency in law for a period that includes the five years that covers the NDS 1 (National Development Strategy 1) period, so this will be in place for the entire NDS1 period.”
Ncube said the interbank market exchange rate is now going to be determined by banks on a willing-buyer willing-seller basis and the utilisation in all economic transactions of this formal rate is now made mandatory by law.
While economic agents are free to price their goods in US or Zimbabwe dollars, he said the equivalence of the US dollar prices and Zimbabwe dollar prices of commodities should be strictly based on the current exchange rate as determined by the willing-buyer willing-seller rate.