Central Bank Injects $64 Million to Stabilize ZWG Amid Depreciation

Move aims to curb parallel market rates and stabilize currency

by Victor Adetimilehin

KEY POINTS


  • The RBZ has injected $64 million into the interbank market to stabilize the ZWG.
  • Analysts blame limited access to foreign currency on the official market for driving companies to the parallel market.
  • Economists urge the government to implement more efficient systems for businesses to access foreign exchange.

In an effort to stabilize the Zimbabwean currency (ZWG) and address its rapid depreciation, the Reserve Bank of Zimbabwe (RBZ) has injected $64 million into the interbank market this month. This intervention comes amid widening gaps between the official and parallel market exchange rates, raising concerns among businesses and citizens alike.

Economic pressures and currency depreciation

The ZWG, introduced in April 2024 under the stewardship of new RBZ exchequer John Mushayavanhu, initially performed well, maintaining a close relationship between official and parallel market rates. However, in recent weeks, the ZWG has faced increasing pressure, with the parallel market now trading at rates exceeding $1:ZWG 20. 

Analysts have pointed to the limited availability of foreign currency on the official market as a key factor driving businesses to turn to the parallel market.  Moreover, this trend has caused significant challenges for companies, with many struggling to secure foreign exchange to meet operational needs. 

According to New Zimbabwe, the Confederation of Zimbabwe Industries (CZI) recently raised alarms about the shortage of US dollars on the official market, warning that this could undermine the ZWG’s acceptability. Large companies, such as Hippo Valley Estates, have also highlighted the growing mismatch between ZWG-denominated revenues and US dollar-denominated expenditures, with suppliers increasingly rejecting the local currency.

Government response and RBZ action

In response to the worsening situation, RBZ Governor John Mushayavanhu announced the injection of $64 million into the interbank foreign exchange market. “During the first two weeks of September 2024, we injected $24 million into the market, and as of 19 September 2024, an additional $40 million has been sold, bringing the total to $64 million for this month,” Mushayavanhu said in a statement.

However, the RBZ emphasized that this intervention is part of its ongoing efforts to smoothen supply-demand mismatches and ensure that all legitimate foreign currency applications are met. Also, the injection is expected to mop up liquidity in the market, helping to stabilize the ZWG.

Economists and analysts have expressed mixed reactions to the RBZ’s move. One financial expert, speaking to local media, stressed the importance of establishing a more efficient system for companies to access foreign currency. “Without a proper mechanism, such as the Foreign Exchange Auction system, it will be challenging to stabilize the ZWG in the long term,” the expert said.

He further explained that even in neighboring South Africa, companies can access forex through banks, and Zimbabwe must adopt similar measures to prevent further deterioration of the ZWG.

As Zimbabwe continues to navigate its economic challenges, the success of the latest foreign currency injection will be closely monitored. For now, the RBZ’s move represents a significant attempt to bring stability to the currency and the broader economy.

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