Accessibility links

Foreign Currency Shortage Hits Zimbabwe's Central Bank - 2004-07-23

Black market currency trading, which disappeared in January, has reappeared with a vengeance. The U.S. dollar is selling more than 30 percent higher than at legal auctions at the Central Bank. The shortage of foreign currency for the private sector is now at an all time high.

The U.S. dollar was selling for 5,355 Zimbabwe dollars at the Central Bank auctions on Thursday. On the street Friday among informal traders, the rate was 7,000 Zimbabwe dollars.

Economists say the sudden reappearance of what is called the parallel market is shown by the ever-rising demand for foreign currency.

Central bank statistics published Thursday show it only had $9.5 million U.S. for sale, while, at the same time, it recorded a demand of nearly $38 million U.S. Every week since shortly after foreign currency auctions began in January, the gap has widened, with supply falling farther and farther behind demand.

The Central Bank presently only allows bids in the range of about $5,300 Zimbabwe dollars to $1 U.S., even though the system is called an auction. The number of bids it rejects has also been on the increase each week.

One of the changes introduced by a reformed central bank in January was to allow Zimbabweans living abroad to exchange foreign currency sent home to families at the best rate through official channels.

The central bank went to the United States, Britain and South Africa to persuade millions of Zimbabweans in the diaspora to send their money home through official channels.

Several economists say that the return of the parallel market will see Zimbabweans working in hard currency countries, reconsidering decisions on whether to send money home to support their families.

They are not the only ones looking at the official channels with alarm. Many in the private sector say they will be forced to take the risk and return to the parallel market to source raw materials, because their bids are regularly turned down at the auctions.

The government says Zimbabwe is experiencing an economic revival, but many economists say the optimism should be tempered by the reality on the ground, where food prices are rising sharply and the private sector continues to contract.