Gono relaxes foreign exchange control

By Violet Gonda
21 October 2005

On Friday the Herald reported that the Reserve Bank of Zimbabwe has relaxed foreign exchange controls. This means the Zimbabwe dollar will be able to trade freely and, in theory, should remove the vast difference between the official and parallel market values of the dollar.

According to the newspaper this replaces the auction system with the ‘Tradable Foreign Currency Balances System’ under which the exchange rate will be determined by market forces. This move is seen as a way to aid both exports and stocks of foreign currency.
The new system was announced by Reserve Bank Governor Gideon Gono on Thursday when he presented the Third Quarter Monetary Policy Review Statement. Under the new system, exporters will now retain 70 percent of their export proceeds in foreign currency accounts (FCA’s), but 30% will have to be surrendered to the central bank.

Holders of free funds, including individuals, non-governmental organisations, embassies, international organisations and non-resident Zimbabweans, can now sell their foreign currency on the interbank market.
The government hopes this will encourage businesses to increase exports.
Economist Eric Bloch is quoted by the BBC as saying Zimbabwe's exporters would benefit from the changes - but not immediately. He said: "This move is going to be positive but it's not a quick fix to our problems.”

Zimbabwe has been hit by rampant inflation which is officially close to 400%. Unofficially, it’s closer to 1000%, Experts say these new measures will initially increase inflation further, until the official and black market values move closer together.