Zimbabwe: RBZ Governor Mangudya Asserts Temporary Nature of Zimbabwe’s Currency Turmoil

Zimbabwe’s recent currency turmoil, particularly evident on the parallel market in the past three weeks, is deemed “temporary,” according to the Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya. The central bank governor attributes the recent surge in exchange-rate volatility to heightened demand for the local currency at year-end, primarily driven by increased supply holders rushing to acquire US dollars.

Mangudya explained that the spike in activity on the parallel market was influenced by various factors, including year-end bonuses for civil servants and supplier payments. While external perceptions may categorize this as an exchange-rate issue, Mangudya emphasizes that it is largely a confidence-related matter, highlighting the desire among individuals to hold foreign currency.

Zimbabwe has been grappling with efforts to stabilize its currency since its reintroduction into circulation in 2019. The local currency has witnessed a 30% devaluation against the US dollar on the official market and over 40% on the parallel market this year. This currency volatility has prompted citizens to prefer the US dollar for various transactions, contributing to an 80% dominance in daily dealings, while Zimbabwean dollars constitute the remaining 20%.

The governor underscores the challenge of economic stability coupled with currency instability in the nation. Despite endeavors to address the situation, annual inflation accelerated to 26.5% in December, reflecting the impact of exchange-rate movements on prices.

Mangudya, whose term concludes in April, urges businesses to support the local currency and refrain from actions that could exacerbate market instability. Many businesses seek US dollar transactions to bolster their greenback revenues.

Addressing concerns raised by entities like Imara Asset Management regarding potential worsening of currency issues due to reduced inflows from lower global commodity prices, Mangudya disagrees. He highlights the presence of new export minerals like lithium in the nation’s basket, providing an opportunity to offset declines in other commodities and contributing to the overall economic stability.