Friday, July 29, 2005

ZW$ further devalued on Harare's streets

Exactly a week after Zimbabwe's central bank governor, Gideon Gono devalued the local currency by 40%, the black market has increased the exchange rate to up to ZW$36,000 per US$1. The official exchange rate is floating at around US$1 to ZW$17,600

In my response to the monetary policy statement I wrote, "Sadly, the changes this latest review in monetary policy bring are not enough to turn around the suffering of many Zimbabweans." The reform aren't hardly enough. If they want forex inflows to improve on the formal market, they must offer incentives for people to leave the black market for the formal market. The biggest incentive would off course be better value for peoples foreig currency, but they don't want to do that.

They've tried enforcing harsh laws in a bid to force people to trade their currency on the formal market, but when the government itself is voilating other laws, no one will adhere to such ad hoc measures. They've also tried to "destroy" the informal market during the morbid cleanup operation. As reality would have it, the market isn't in infrastructe alone, the market resides in peoples' minds. As long as people have needs and there's scarcity, people will gravitate towards the fairest market they can find. In Zimbabwe it is the "black" market right now.

Whether the central bank will get that basic tenant of economics is a toss up. In the meantime, they will have to continue chasing the wind if they think their half way measures will do for them.

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