Zimbabwe has been urged by the International Monetary Fund (IMF) to take further steps to continue with currency reform. The country is struggling with its currency volatility, and the IMF believes it will depend on the “swift resolve” to liberalize the foreign-exchange market with a view to transition to market-based price discovery. The Reserve Bank of Zimbabwe has recently eased curbs to the foreign-exchange market, but stopped short of free-floating its local dollar. As a result, stocks have surged over 600%, and inflation is rising amid a wave of price hikes on basic goods. However, the central bank has maintained “parameters,” meaning it will set the floor price for dollar sales and the sale of foreign currency to banks.
The move is welcome by the IMF in establishing an interbank market, but the parallel rate continues to depreciate. Consequently, a Zimbabwe dollar trades on the interbank market for 5,487 per US dollar. Black market exchange rates on ZimPriceCheck.com and ZimRates.com websites monitor the rates and showed that on Monday, they ranged between 6,200 to 6,700 Zimbabwe dollars per greenback.
Therefore, the IMF has suggested “a convergence of the official and unofficial exchange rates is possible only if the authorities accelerate liberalization of the foreign-exchange market, address the Reserve Bank of Zimbabwe’s quasi-fiscal operations to mitigate liquidity pressures and maintain an appropriately tight monetary policy stance to durably restore macroeconomic stability and ensure social stability.”
What does this mean for currency traders?
Investors might be interested in following events in Zimbabwe because the local dollar has been witnessing some significant changes. In particular, the easing of curbs to the foreign-exchange market has caused the local stock market to increase more than 600%. Moreover, inflation is rising, and the country is facing higher prices on basic goods. These can suggest after-effects, even in the global currency market.
According to experts, currencies tend to move in many ways. In a period of volatility, which is currently the case in Zimbabwe, any foreign investor or local trying to import or export will be influenced. That’s why investors need to monitor not just the free float index of the Zimbabwe dollar, but also the local economic conditions.
To conclude, investors need to keep a close tab on Zimbabwe’s economic developments to better understand how it could impact global currency markets.