RBZ eases grip

LIVINGSTONE MARUFU

The Reserve Bank of Zimbabwe (RBZ) has abandoned its heavy-handed approach to exchange rate enforcement, marking a decisive policy shift that authorities believe will foster market stability, rebuild business confidence, and allow the new currency, Zimbabwe Gold (ZiG), to establish itself under genuine market conditions.

The U-turn, formalised through Statutory Instrument 34 of 2025, repeals the controversial regulations that previously empowered the Financial Intelligence Unit (FIU) and the Zimbabwe Republic Police (ZRP) to arrest traders for pricing goods more than 10% above the official exchange rate. For many businesses, that era of arrests, fines, and intimidation eroded operational certainty and shattered faith in the country’s fragile monetary system.

RBZ Deputy Governor Dr Innocent Matshe confirmed the shift, stressing that the central bank will no longer dictate exchange rates or prices through force but will allow market forces to determine their own course.

“What we are trying to do as a central bank is to make sure that the players in the market drive the activity in that market, not the central bank [and various agents]. So the heavy-handedness of the central bank is gone. You will never see it again,” Dr Matshe declared.

For years, Zimbabwe’s economy has grappled with the damaging effects of state-imposed controls, which distorted market signals, fuelled parallel market activity, and stifled the competitiveness of formal businesses. While these interventions were initially intended to stabilise the economy, they ultimately suppressed natural market forces and left businesses navigating an unpredictable enforcement environment.

The latest move signals growing recognition that true economic stability requires less coercion and more reliance on market fundamentals—where supply and demand, not government edicts, determine currency values.

But the transition has not been smooth. Despite the liberalised framework, wide premiums persist, with banks charging significantly above the interbank rate for foreign currency. Dr Matshe expressed frustration at this, but conceded that such fluctuations are inevitable in a market-led environment.

“Where in the world did you get that? But the central bank has made that happen. Because we want the market, not the central bank, to determine where the rate is,” he said.

Nonetheless, signs of stabilisation are emerging. Major retailers such as TM Pick n Pay and OK Zimbabwe have kept their exchange rates relatively stable, pegging the ZiG at US$1:ZiG32 and US$1:ZiG31.95 respectively. These rates align closely with formal market averages, providing a degree of predictability for businesses and consumers alike.

Still, liquidity constraints remain a critical obstacle. Many businesses continue to struggle to access both foreign and local currency, raising concerns that, without improved liquidity conditions, the market-based system alone may not deliver the stability Zimbabwe urgently needs.

Dr Matshe maintained that the fundamentals are improving, pointing to narrowing exchange rate premiums as evidence that confidence is slowly returning.

“The monetary policy stance we have taken has narrowed the foreign currency premium in this country. And we have seen, and I have repeated it this morning, that there is enough foreign currency in this country,” he said.

He urged businesses to avoid the parallel market, where some traders are buying foreign currency at rates as high as ZiG37 or more, compared to the formal banking channels offering rates closer to ZiG33.

“These are the goals we have to exercise. And we exercise them by making sure we adhere to the principles of a market economy. That market economy cannot happen overnight and cannot be created by the central bank and the central bank alone,” Dr Matshe added.

Since the introduction of the ZiG, authorities have insisted that the currency is backed by tangible reserves, including gold and other precious metals. Yet, public acceptance remains tentative. Years of currency collapses, broken promises, and erratic policies have left deep scars, fuelling scepticism among businesses and consumers alike.

Even the central bank concedes that rebuilding confidence requires more than technical assurances.

“It is clear that there is a deficit of trust and confidence that gives that premium to what the market is actually charging right now,” Matshe acknowledged.

Despite these challenges, economists agree that removing arbitrary controls brings long-term benefits. A market-aligned exchange rate enhances competitiveness for exporters, improves pricing transparency, and boosts the efficiency of the formal economy. By fostering predictability, the new approach is also expected to make Zimbabwe more attractive to both domestic and foreign investors.

However, market liberalisation also exposes the economy to new risks. Without adequate liquidity and strong financial sector oversight, volatility could persist, hurting businesses and pushing consumers into the informal market.

Authorities are alive to these risks. Dr Matshe revealed that the RBZ is developing additional monetary tools to deepen and refine the foreign exchange market, striking a balance between market freedom and macroeconomic stability.

Ultimately, the success of the new policy direction hinges on the central bank’s ability to resist excessive money printing, maintain discipline, and rebuild trust through consistent, transparent action. The future of the ZiG—and the broader economy—now depends not on state enforcement, but on whether markets believe the rules of the game have genuinely changed.

For now, the RBZ insists the era of coercion is over. Whether the market rewards that promise with lasting stability remains the crucial test ahead.