Zimbabwe: Government Ordered Banks to Stop Lending

David Kipre

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The decision taken by the Zimbabwean government has the effect of letter speculation against the Zimbabwean dollar and thus put an end to its rapid devaluation on the black market. President Emmerson Mnangagwa, has accused some speculation from anonymous sources of using Zimbabwean currency borrowing at interest rates clearly below inflation and using these funds to trade in foreign currency.

1-The Zimbabwean dollar in free fall

The local currency, the Zimbabwean dollar, was reintroduced into the country in 2019.

It had been abandoned for more than ten years, due to hyperinflation.

Currently in the country, the Zimbabwean dollar has an official quote estimated at 165.94, against the US dollar, and continues to slide in black market prices where the exchange rate is between 330 and 400 Zimbabwean dollars to 1 US dollar.

Current exchange rate: 1 US Dollar (USD) = 330-400 Zimbabwean Dollars (ZWL)

This exchange rate continues to weaken the country’s economy, and inflation has only been rising since the Zimbabwean dollar slipped into the black market for monetary values.  The year-on-year rate surpassed the 95% mark in April, compared to a rate of 60.6% in January.

2- The purpose of the reform prohibiting loans

In 2015, the capital Harare, had opted for a historic decision to abandon the local currency, in the face of the economic crisis that was hitting the country, as well as because of hyperinflation. 
 Following the loss of its temporary monetary sovereignty, the Zimbabwean government had to ask the populations to switch to the use of 8 different foreign currencies including the US dollar, the Chinese yuan, the Indian rupee or the South African rand which had become its official currencies.

All this monetary change may have created the possible chasm into which the Zimbabwean currency is slipping, which is in the grip of a free fall in its own country against foreign currencies introduced for economic reasons.

The decision taken by the Zimbabwean government is therefore aimed at putting Zimbabwe’s economy back on a road train that is less dangerous than the one it is on.  Indeed, for a rise in the exchange rate, the law denying banks the granting of loans, has as its main purpose to put an end to speculation against the Zimbabwean dollar.

This is not very easy news for Zimbabwean civil servants and companies, who unfortunately can no longer use loans in local banks. The application of the law, therefore, obliges any bank to a strict and categorical refusal to grant loans. This, with the aim of stopping the process of devaluation of the Zimbabwean currency on the black market.

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