HARARE, June 16 (Xinhua) -- Zimbabwe will continue to use a dual currency system despite the local currency losing considerable value against the U.S. dollar, so as to maintain financial and economic stability, Finance Minister Mthuli Ncube said Thursday.
"We cannot just have the U.S. dollar circulating because that will wipe out the balance sheets of companies. If you do that it will create a very dangerous situation. You will also wipe out the pension balances so we do not want to go there, we have been there before. Here we are trying to compensate citizens for losses (incurred when the country adopted the multi-currency regime in 2009)," Ncube said.
He was speaking at a currency conference convened by the Political Actors Dialogue (POLAD) in Harare, the capital of Zimbabwe. He said the government has put in place strong economic fundamentals to support the Zimbabwe dollar and is now focusing on ending arbitrage opportunities and speculative behavior driving the depreciation of the local currency.
The Zimbabwean government in June 2019 removed the multiple currency regime that was introduced in 2009 after the Zimbabwe dollar had been rendered worthless by a decade of hyperinflation, and re-introduced the Zimbabwe dollar as the sole legal tender, in a move aimed at stabilizing prices and containing inflation.
In March 2020, however, the Zimbabwean government allowed people with free funds to use their foreign currency to pay for goods and services for easier transactions following the outbreak of the COVID-19 pandemic. The use of the U.S. dollar has since grown in the economy.
Despite introducing the foreign currency auction system in 2020 to help foster transparency in the management of scarce foreign exchange, the Zimbabwean dollar has continued to lose value against the U.S. dollar.
The weakening of the local currency has been more pronounced in recent weeks, with the Zimbabwe dollar trading at 338 against the U.S. dollar at Tuesday's weekly auction, while on the parallel market it is going for anything between 500 and 550 against the greenback.
"The fundamentals are strong, there is nothing wrong with the fundamentals, it is really the arbitrage and speculative behavior that we see in the market, and we have taken some measures to deal with that," Ncube said.
The assault on the local currency is manifesting through the current wave of price hikes for basic goods and services.
The government believes that the weakening of the local currency is being driven by exchange-rate manipulation through speculative lending by banks to both individuals and companies.
Recent media reports indicate that four banks have been placed under surveillance by the Reserve Bank of Zimbabwe's Financial Intelligence Unit (FIU) on suspicion of fueling illegal foreign currency dealings.
Investigations by the FIU will focus on the banks' alleged injection of excess liquidity into the market, precipitating the fall of the local currency and in turn price hikes. ■