Zimbabwe Central Bank to Ease Currency Reins and Allow Free-Float of ZiG

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HARARE– Zimbabwe wants its gold-backed currency to float freely on the foreign exchange market, the central bank’s deputy governor said, though he declined to spell out when this would happen.

“The idea is to have price discovery that is not interfered with by administrative measures,” Innocent Matshe said Wednesday in an interview in Bulawayo, the nation’s second-biggest city. “The endgame is a floating exchange-rate which is free from interference.”

The ZiG, short for Zimbabwe Gold, debuted in April, marking the southern African nation’s sixth attempt in 15 years at a viable local currency to replace the dollar as the main unit of exchange.

It has since weakened significantly on the unofficial market, prompting the central bank to devalue it by 43% on Sept. 27. The street value of 35-40 ZiG per dollar remained at a clear discount to the central bank’s official price on Thursday of 26.69 per dollar.

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The switch from the current system, where the central bank sets a daily price and permits incremental day-to-day changes, will be determined by market developments, said Matshe. He gave no timeline for implementation.

The central bank’s grip on the official exchange rate has been fiercely criticized by businesses for creating an overvalued currency which causes price dislocations across the economy.

Still, monetary authorities will not entirely abandon their responsibility of ensuring the market operates efficiently. “All central banks do intervene in the market when the price discovery mechanism fails for one reason or the other,” he said.

Source: Bloomberg