September 10, 2008

Selected merchants allowed to sell in foreign currency

Reserve Bank Governor Gideon Gono has announced that some retailers and wholesalers in the country will be permitted to sell goods in foreign currency. Fuel will also be allowed to be sold in forex, with immediate effect. Gono said the authorities would embark on an 18 month experiment with about 1,200 licensed merchants. The central bank governor said the Zimbabwe dollar would still remain the legal tender. It was not immediately clear why the authorities picked only 1 000 retailers and 200 wholesalers to sell in forex, rather than issuing a blanket permit. The RBZ governor said he was inviting interested parties to submit applications. However there is still concern that this plan leaves room for corruption.
Economist Tony Hawkins believes legitimising the use of foreign currency dealings is simply confronting reality as many outlets in Zimbabwe are already charging in US dollars. The official inflation level is 11 million percent; the unofficial level could be as high as 300 million percent. As such, there has been a dramatic escalation of the 'dollarisation' of the economy in recent months, with more and more transactions in the country being made in either US dollars or petrol coupons.
While there are some Zimbabweans who have access to foreign currency, frequently received from family in the Diaspora, they represent a minority. The strategy by the central bank will not benefit the wider population. Most people, including civil servants and those in rural areas have no access to foreign currency, and have now been reduced to a hand-to-mouth existence.
For ordinary Zimbabweans, Hawkins predicts prices are going to continue to rise, and will only be pushed up further by the wider use of the US dollar. Hawkins says Gono's latest plan will not solve the problems bedevilling the economy. He predicted: "The prices which are being driven by inflation are going to be driven more and more by forex because people are going to be quoting their prices in US dollars. But because US dollars are being bought on the streets at higher and higher exchange rates, that is going to drive prices up."
He said the inflation and exchange rate has mainly been driven by the excessive printing and borrowing of money by the regime. Meanwhile much hope is being penned on the success of the negotiations between the rival political parties in Zimbabwe. It is widely believed that for the power sharing talks to be effective a substantial financial commitment would need to come from the international community for Zimbabwe's reconstruction. However Hawkins said the international community is not likely to accept the deal if there is no real transfer of power. (SW Radio Africa, London)

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