Zimbabwe conducted its first weekly foreign currency auction on Tuesday with the local dollar trading at an average of 57.3582 to the U.S. dollar, ending a fixed exchange rate of 25 in place since March.
The southern African country reintroduced its local currency last year after a decade of official use of the U.S. dollar in the economy. But the local currency rapidly lost value, sending prices rocketing and raising fears of renewed hyperinflation.
Since the end of dollarisation, the government has flirted with a managed float exchange rate, which it announced on March 11, before fixing the exchange rate at 25 Zimbabwe dollars to the U.S. dollar on March 26, citing the need to support the economy against the COVID-19 pandemic.
The new foreign currency auctions were announced last week after exporters complained that the fixed exchange rate was hurting them. Their costs were based on a black market rate that was significantly weaker than the official rate.
During Tuesday’s inaugural weekly auction, bids amounted to US$11.4 million, while US$10.3 million was made available. The lowest bid was 25 Zimbabwe dollars for one U.S. dollar and the highest reached 100 Zimbabwe dollars for one greenback.
Sources of foreign currency for the auction market include part of the export proceeds retained by the central bank, export earnings, remittances and credit from unnamed international banks.
The bulk of the funds sought by bidders through the auction system was to support imports of raw materials, machinery and equipment as well as food and beverages, according to a central bank notice.