The Zimbabwe dollar strengthened again this week after banks failed for the second time to take up all the US dollars on offer at the weekly forex auction.
The ZW$ gained a whopping 10% at the latest auction, pushing the exchange rate from $1:ZW$6,326 to $1:ZW$5,739.
This comes after the local currency lost significant value last month, prompting the government to introduce measures to boost ZW$ usage and curb excess money supply.
These measures include funding 25% of export receipts, maintaining a 2% tax on US$ withdrawals and lifting import bans on basic goods.
Analysts say these interventions – combined with less access to US dollars – have increased demand for the ZW$ from companies and individuals who now need it more to pay taxes, import goods and pay wages.
But despite the ZW$ strengthening, banks at the auction this week only managed to purchase US$3.95 million out of the US$20 million on offer.
At the previous auction earlier this week, banks had also failed to exhaust the foreign currency allocation.
Economist Persistence Gwanyanya warns this could lead to “over tightening” of US dollar liquidity. However, he says increased requests from major firms to convert ZW$ into US$ shows financial intermediation “is still poor”.
So while the ZW$ is currently bucking up, banks’ lack of appetite for US dollars at recent auctions raises questions about its long-term stability.
As treasurers are urged to step up their game, all eyes will be on the next forex auction to see if the ZW$ can sustain its gains.