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Zimbabwe Dollar Floats Downward to Bring in Foreign Currency

Zimbabwe's central bank has allowed the value of the country's currency to fall to about 20 percent of the black market rate, in what economists say is an effort to bring in needed foreign currency.

The gap between the official and unofficial rates of exchange is at its narrowest for nearly six years, the time when the economy started its downward slide.

Economists all say that the government is trying to scrape up as much foreign currency as possible to eradicate the black market trade in U.S. dollars.

The central bank is now offering anyone 87,000 Zimbabwe dollars for one U.S. dollar with no questions asked.

This interbank rate as it is officially known compares with a rate of about 12,000 Zimbabwe dollars to $1 U.S. just five months ago.

Over the recent holiday period the local currency was devaluing at the rate of up to 1,000 Zimbabwe dollars a day.

Two days before the Christmas holiday officials from the central bank were prepared to pay travelers at the southern border post, Beit Bridge, 10 percent more for their South Africa rands than black market traders were offering.

The black market value of the Zimbabwe dollar has usually been three times more than that offered by the central bank until it lifted the fixed rate late last year.

Zimbabwe does not have enough foreign currency to import fuel or essential spare parts or capital equipment for commerce, industry and the mining sector.

Daniel Ndlela is an economist and regional financial consultant. He says the Zimbabwe government is desperate to get as much foreign currency as it can into the central bank for essential imports.

He said the central bank has taken steps to devalue the currency, or allow it to float, to make the black market less attractive.

He said he doubts whether the two rates would remain that close for much longer.

Economists say that as factories restart after the annual shut companies would have to return to the black market for foreign currency for essential imports and the gap between the two rates would widen again.

Economists say no one is sure of the true value of the Zimbabwe dollar because of the country's chaotic economic fundamentals and a further economic decline is expected in 2006.