Zimbabwe’s currency problems continue as the local dollar loses more and more value compared to the U.S. dollar. At the latest Reserve Bank of Zimbabwe auction, the exchange rate jumped to over ZWL$1,800 for every US$1. This represents a massive decline from just ZWL$ 1,400 last week.
At the auction, businesses were allocated US$14 million in foreign currency reserves. Most of that money, US$13.2 million, went through the main auction. The remainder went to small and medium enterprises.
However, the sharp devaluation shows that Zimbabwe is still struggling with currency issues. The new Dutch auction system that the Reserve Bank implemented does not seem to stabilize the exchange rate as intended.
The plummeting exchange rate has negative consequences for Zimbabwe’s economy. It fuels high inflation as the central bank prints more money to compensate. It reduces Zimbabweans’ purchasing power since their currency buys fewer imports. Exports become less competitive internationally. Living standards decrease as the costs of basic necessities rise. Businesses face uncertainty. And Zimbabwe’s large external debt becomes more expensive to repay.
In order to resolve these currency problems, fundamental economic reforms will be needed. Simply adjusting the exchange rate mechanism does not seem to be enough. More wide-ranging changes are required to boost confidence, attract foreign investment, and restore stability to Zimbabwe’s financial system.
