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Fixed exchange rate counterproductive: ZNCC

The fixed exchange rate between the local currency and the United States dollar is counterproductive and should be done away with, the Zimbabwe National Chamber of Commerce (ZNCC), has recommended.

Reserve Bank of Zimbabwe (RBZ) governor John Mangudya late last month suspended the floating exchange rate system and fixed the exchange rate at US$1: ZW$25, while allowing Zimbabweans with free funds to transact using foreign currency.

Under the floating exchange rate system, which the apex bank adopted after it had become apparent that the United States dollar was not at par with the bond note, exchange rates were determined by market forces.

 In a recently published survey, entitled: Sustainable and flexible economic interventions to address COVID-19,” ZNCC proposed that the government should move from fixing the exchange rate.

“Fixing the exchange rate is counterproductive as it weighs on exporters and the interbank while propping up smuggling of minerals and other export commodities,” said the business lobby group.

“RBZ should move back to a managed float with regular review to prevent widening parallel market premiums. Regular reviews should at least take into account commercial banks input.”

On the parallel market, the greenback trades at 1:30 against the Zimbabwe dollar for cash transactions and 1:45 for transfers.

The fixed exchange rate is by and large not working, with traders opting for the one offered by the parallel market.

Meanwhile, ZNCC has said interest rates must be lowered to 20% from 35% and loans must be restructured so as to allow businesses to recover from the effects of COVID-19.

“Loan restructuring will entail review and relaxation of regulatory guidelines and benchmarks,” said ZNCC.

“SI65a, which provides for payment of interest on demand  and call deposits and funds in mobile wallets/trust accounts at an interest rate linked to TB (Treasury Bills) rate of respective tenor, should be repealed given that it increases the cost of funds for banks which will be passed on to borrowers through higher lending rates.”

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