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| A man counts bond notes at a vegetable market in Harare, Zimbabwe, January 23, 2019. REUTERS/Philimon Bulawayo/File Photo |
Zimbabwe scrapped the peg between its quasi-currency bond note and the U.S dollar on Wednesday, its central bank governor said, potentially paving the way for its official currency exchange rate to slide sharply to match its value on the streets.
Central Bank Governor John Mangudya said the surrogate bond notes would trade in a managed float against the U.S. dollar and other foreign currencies in a new foreign exchange interbank market launched on Wednesday.
The removal of this official peg may be seen as a dry run for the eventual re-introduction of a Zimbabwean dollar currency, which the finance minister has said will happen within 12 months.
The southern African nation adopted the U.S. dollar after dumping its hyperinflation-hit currency in 2009. It has recently been struggling with a shortage of cash dollars, leading to prices on imported goods spiraling in the last few weeks.
A sharp increase in the price of fuel together with broader economic difficulties last month led to violent protests that were met by a brutal security crackdown.
Mangudya also ditched the 1:1 peg between the greenback and electronic dollars, known as Real Time Gross Settlement dollars.
โWe are using what is known in economics as โmanaged floatingโ on a willing buyer, willing seller basis,โ he said, suggesting that the central bank will try to keep control of the slide in the exchange rate.
Mangudya, who said the country would continue using multiple currencies like sterling and South Africaโs rand, also said importers would now buy dollars at rates set by the interbank market.
Businesses and miners have been lobbying the central bank since last year to float bond notes and electronic dollars.
Zimbabwe has maintained a one-to-one pegged exchange rate between bond notes, first launched in 2016, and the dollar even though the greenback and other currencies such as South Africaโs rand have fetched high premiums when exchanged for the notes. The bond notes are used for day-to-day transactions in the shops and elsewhere.
Harare-based economist Ashok Chakravarti said businesses that bought dollars on the black market were charging higher prices, fanning inflation, which reached 57 percent in January.
โThis system will stop that completely because you will have a transparent interbank rate which will be used by the market and importers to price their goods,โ said Chakravarti.
Businesses charge more for bond notes and offer discounts to those paying in dollars.
On Wednesday, $1 fetched up to 3.50 bond notes on the street and more for electronic dollars, reflecting the ongoing shortage of dollars and peopleโs desire to trade out of cheapening bond notes and into more reliable currency.
When the bond note was introduced, dollar deposits in the electronic banking system started losing their value.
