Ostensibly in order to deal with the negative effects of Covid-19 on the Zimbabwean economy the Reserve Bank of Zimbabwe, most certainly with the blessing of the government in general, is essentially bringing back the multicurrency system less than a year after they scrapped it. A warped reason for why they are doing it now is given in the first two paragraphs of the RBZ’s communication but I couldn’t make sense of the logic behind it.

Don’t get too excited about this

Like most other people we have consistently said the return of the Zimbabwean dollar was premature and probably not done with good intentions. However this latest development is not great either. The Reserve Bank has prescribed a fixed exchange rate of 1:25. This is one of those bizarre things the bank likes to do. The interbank rate stood at 1:26.11 yesterday so why fix the rate below that?

This will mean that most shoppers will continue to use the local currency after they do a trade on the black market which is trading at 1:45. Maybe that’s the whole point. Shoppers and shops will continue to use the local currency instead of getting the taste of using the USD.

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