Thursday, January 8, 2009

Exchange rate udate by John Robertson

A few exchange rate indications are beginning to emerge, but as the dollarisation of the economy gathers momentum, the effective exchange rate of the Zimbabwe dollar to the US dollar is becoming a less relevant issue. In the attached table I have tried to capture what is still taking place, but the red figures are no more than indications of where the numbers might be if trading were taking place. As increasing proportions of all transactions will soon be recorded only in US dollars, the strong likelihood is that calculations of what these figures would look like re-expressed as Zimbabwe dollars will become increasingly irrelevant.
Right now, with many of the factories still closed and the shops carrying almost nothing but imported goods for which they are paid directly in hard currency, deals involving Zimbabwe dollars are becoming less frequent and less important. But as this carries the risk of marginalising the whole banking sector, and as the Reserve bank wielded a lot of its authority through its controls over banks, there can be little doubt that the Reserve Bank will find reason to try to gain increased levels of control over business payments procedures.
On this course, it seems inevitable that business activity will continue shrinking as the hard currency flows into and out of the country will continue to reflect scarcities, some of which will result from falling export revenues, some from the increasing need to import food and some from the added stresses and job insecurity being experienced by Zimbabweans working abroad. The possibility exists that current consumer spending levels are reasonably high because the foreign currency being spent was accumulated over a period of years. Falling spending power might well emerge in the coming months, particularly if conditions remain depressed in world markets and no improvements are seen in mineral export revenues.
Zimbabwe's need of help will grow more desperate in the coming months, specially as current forecasts suggest the harvests this year will be the worst on record, but as yet the country has done nothing to make itself deserving of the immediately needed financial rescue package, and nothing to suggest it is ready to accept major changes in its longer-term economic strategies. To be taken seriously in either of these respects, Zimbabwe needs to propose and enact major political policy changes, but that urgent challenge seems to be hard to keep on the agenda.
Hopefully the imminent collapse of the country's entire currency system will bring the matter back into focus.
Kindest regards,

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