Zimbabwe’s central bank abandoned a currency peg which it had introduced in March and said it would allow the rate to be set by an auction system.
The announcement represents a setback for Governor John Mangudya of Reserve Bank of Zimbabwe, who unilaterally imposed the peg of 25 to the U.S dollar against the advice of the bank’s Monetary Policy Committee, according to those familiar with the situation.
The introduction of the fixed rate further strained relations between Mangudya and Finance Minister Mthuli Ncube, who have clashed on other policy issues.
Auctions will be held weekly under a system to be introduced on June 23, the Central Bank said in an emailed statement on Wednesday.
Authorised currency traders will be required to serve all importers and users of foreign currency in between auction days at the ruling market.
“Its a defeat for Mangudya, but for how long it will last no one really knows,” said Tony Hawkins, an economics professor at the University of Zimbabwe.
A narrowing of the gap between the official rate and cost of currency on the black market is likely to result from the new system, which has risen to four times the peg rate.
The tobacco and gold sectors had campaigned against the peg as they said it was making their business unviable seeing some mines being closed down.
Last year, Zimbabwe re-introduced its currency after scrapping it in 2009 following a hyperinflation.
Erratic currency policy has now contributes to an inflation rate of 786% and regular shortages of fuel, wheat and foreign exchange.
A crawling peg, which will be adjusted from time-to-time, will still be used for dealings with the government.
