Zimbabwe’s President Emmerson Mnangagwa has imposed capital controls in an attempt to control the currency’s rapid depreciation.
The Zimbabwean dollar has lost half of its value this year making it Africa’s worst performing currency. Banks in the country have been ordered to stop lending with immediate effect “to minimize the creation of broad money that is prone to abuse for purposes of manipulating the exchange rate,” Mnangagwa said in a televised speech.
The move is meant to support the currency, amid a growing threat of the economy dollarizing for the second time since 2009 when the country last officially turned to the U.S. dollars as hyperinflation soared. Old Mutual, the largest insurer in the country, in its quarterly economic brief warned that dollarization is inevitable to stabilize prices. Annual inflation in April soared to 96.4% from 72.7%.
“Banks shall with immediate effect not process third-party country foreign payments,” the president said, referring to payments made to an entity overseas via another country. “Third-party foreign payments are susceptible to illicit financial flows which prejudice the country of its hard-earned foreign currency resources.”
The new measures also reverse the administration’s propensity toward the U.S. dollar which had the effect of undermining the local currency reintroduced in February 2019. The state pays in part its employees salaries and Covid-19 allowances in the American currency. It had also paid annual bonuses in U.S. dollars last year.
In the southern African nation most payments from fuel to food, medicine and school fees are pegged in U.S. dollars. Multiple exchange rates of at least 350 to 420 per U.S. dollar are readily available on the parallel market. The local unit officially trades at 165.99 to the U.S. dollar.