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Reserve Bank Responds to Crisis With Steep Devaluation

With the Zimbabwean economy ever more deeply in crisis and Harare reaching out near and far for loans to brake the downward spiral, Reserve Bank Governor Gideon Gono devalued the currency on Thursday by 62%, raising the exchange rate for U.S. dollars to 17,500 Zimbabwe dollars from 10,800 previously.

In another move aimed at drawing foreign exchange back into circulation, drivers and transport operators will be allowed to purchase fuel with hard currency, no questions asked – in effect, a partial dollarization of the Zimbabwean economy.

The hope is that a more attractive price in Zimbabwe dollars for greenbacks, South African rand and other hard currencies will increase the supply necessary to purchase essential – and scarce – fuel and food. Letting drivers use dollars to buy gasoline at designated stations could help capture more hard currency at the pump.

But can Dr. Gono’s policy changes revive the broad economy, with agriculture in collapse and the industrial export sector a vestige of its former self?

One skeptic is Dr. Godfrey Kanyenze, director of the Labor and Economic Development Institute in Harare, who told Blessing Zulu of VOA’s Studio 7 for Zimbabwe he doubts forex adjustments can activate a recovery.

More stories from VOA's Studio 7 for Zimbabwe