Zimbabwe has discarded its 21-month-old controlled foreign currency auction system in favour of free market trading, its central bank governor announced on Thursday.
The central bank in January 2004 introduced the auction system, in which it determined the rate in a bid to narrow extreme differences between the official and parallel rates with the US dollar and other international currencies.
Under the new system, exporters will be allowed to trade 70% of their foreign currency earnings at the ”market-determined rate on the interbank market” while the remaining 30% will be surrendered to the central bank at the official rate which will be determined from time to time.
Other holders of foreign exchange will also be able to trade their currencies at the market determined rate, governor Gideon Gono said.
On the day the auction rate was introduced last year, the greenback traded for an average of 4 196,58 Zimbabwe dollars, a rate that has now shot up to the current 26 000 Zimbabwe dollars.
At that time the US dollar was worth about 6 000 Zimbabwe dollars on the parallel market, where it currently trades for around 90 000 Zimbabwe dollars.
Zimbabwe has long been experiencing a shortage of foreign currency as external debts have accumulated, while the government has failed to import adequate vital commodities such as fuel and medicines.
But in recent weeks the southern African country made a surprise debt repayment to the International Monetary Fund of $135-million out of its $295-million loan. It plans to clear the remaining debt of $160-million by next year.
Traditional top foreign currency earners such as tobacco and tourism have nose-dived in recent years due to failure of the country’s controversial land reform programme and political tensions, according to critics.
Zimbabwe is currently in the throes of one of its worst economic crises since independence from Britain in 1980, with unemployment standing at 70% and inflation at 360%.
Around 80% of the population are living in poverty.- Sapa-AFP