The Zimbabwe dollar continued to strengthen against the US dollar this week as banks failed to absorb all the foreign currency offered at two separate wholesale forex auctions.
At the second auction held on Wednesday, banks were able to buy just US$2.9 million out of the US$20 million on offer. This pushed the local currency exchange rate up by 8.8% to an average $5 739,7961/US$. In total, the Zim dollar has gained 17.4% this week.
The poor uptake points to banks not needing extra foreign currency to meet customer demands, or a shortage of Zimbabwe dollars from subdued lending. The government has been working to reduce the money supply and mop up excess liquidity.
The auction results show banks paid between $7 155/US$ at Tuesday’s auction to a low of $5 263,16/US$ on Wednesday, meaning they will have to charge different rates to customers.
Economist Persistence Gwanyanya says authorities may be overtightening monetary policy, but hopes tight liquidity will build a more sustainable forex market. He says a “digital gold token” is needed to preserve value given the Zim dollar’s weakness.