Just a week ago we noted with alarm how the parallel market exchange rate had reached 500 Zimbabwean dollars for a single United States Dollar. The article included a quippy remark about one quote from a trader at 600 to 1. Well, that informal trader was simply ahead of their time and a week later 600:1 is the dominant rate for Zimbabwean dollars to US dollars on the parallel market. We are a long way from where the measures to restore confidence intended for us to be.


To put this number in context we started the year with a parallel market rate of around 220. At the time it seemed like the rate was galloping after starting 2021 at 100:1. The move from 220 to 600 represents 172% growth or 63.33% depreciation and we are not even halfway through the year. Contrast that with last year’s 120% growth or 54.55% depreciation for the entirety of 2021. This is not altogether surprising as the pressure has been building up. We have seen other indicators such as inflation gathering momentum and accelerating, the currency was sure to follow.


In a cruel twist of fate, the measures that were announced over a month ago now have exacerbated the problem rather than calmed it. Across the board, stakeholders were dealt shocks that while momentary have long-standing ripple effects. Bank lending was suspended for just over a week but that was long enough to show just how deep the cracks in the economy were. The move to increase capital gains tax on marketable securities (announced as 40% but revised to 4%) dealt massive blows to the ZSE that it just hasn’t recovered from yet and may take some time to. The adjustment in the auction to only allot available funds, while a good measure has shown the problems with the auction system. And the interbank rate…

The grass is not greener

The auction has given up a lot of ground on the value of the Zimbabwean dollar since the measures were announced. One thing that we should recall from the speech with the measures was the idea that the Willing Buyer Willing Seller (WBWS) rate, which became the indicative rate for pricing with a 10% allowance would continue and be merged with time. The auction result for Tuesday 14th June placed the Zimbabwean dollar at 338.4921. This after starting the year at 108.66 means a rate growth of 211.5% or a depreciation of 67.9% in the value of the Zimbabwean dollar. The auction rate is playing catch up to the WBWS rate. Most stores use an in-store rate of around 420 implying a WBWS rate of around 380:1.

It’s not easy to say why this is happening. The measures announced certainly hurt sections of the economy. If the Reserve Bank has indeed arrested money supply growth then the problem is a (US dollar) demand-side problem. This makes sense as the natural reaction after such a shock as the measures provided is to secure your position. In this case, one would seek to hold US dollars and be willing to part with more Zimbabwean dollars for a single US dollar.

The situation has certainly reached another level, to borrow a phrase. Surely the authorities are brewing something in the background to deal with the temperature in the teapot nation. It is not a matter of if but when they will step in to try to douse the flames.