(Bloomberg) -- Zimbabwe’s acceptance that most business will take place at a newly introduced interbank rate for the Zimbabwe dollar amounts to an effective devaluation of the local currency, a policy maker said.

The Reserve Bank of Zimbabwe introduced the interbank rate on May 9, two days after President Emmerson Mnangagwa temporarily barred banks from lending and introduced a raft of other measures in a bid to halt the plunge of the Zimbabwe dollar on the black market. The government sets its official rate at a weekly auction. 

Prior to the lending ban, which was lifted this week, the Zimbabwe dollar was officially trading at 166 to the greenback and as much as 420 on the black market. The interbank rate was introduced at 276 and is now 289. 

“Given the questions regarding efficient price discovery, we feel the interbank is more efficient than auction system in terms of price discovery,” Persistence Gwanyanya, a member of the central bank’s Monetary Policy Committee, said in an interview. 

The interbank rate is being adopted widely in the pricing of goods and services by businesses and government departments. With only a less competitive auction rate to rely on, many businesses had turned to the black market. 

In his televised address on May 7, Mnangagwa said businesses could use the interbank rate plus a margin of up to 10% in the pricing of goods. The auction and the interbank rates will converge “over time,” he said.

“There may not be convergence yet, but there are acceptable differences,” Gwanyanya said. The auction rate has weakened to 258 to the dollar.

The lending ban and the introduction of a new rate are the latest developments in a currency crisis that stems back to 2009, when the Zimbabwe dollar was abandoned in favor the US currency after a bout of hyperinflation. The Zimbabwe dollar was reintroduced in 2019 and immediately began to fall.

The auctions won’t immediately be abandoned as they are a source of foreign currency for critical parts of the economy, he said. 

Still, at an auction on Tuesday the government offered $6.8 million, a franction of the $51 million business sought.

The ideal situation is to have a one exchange rate economy, according to Gwanyanya.  

“When we have multiple rates it means we have not yet achieved stability,” he said. “But the gaps are starting to close.”

 

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