Zimbabwe’s currency woes continue to deepen as the exchange rate between the US dollar and the Zimbabwean dollar (ZWL) on the parallel market has hit a new record high. Over the past week, the exchange rate has increased from 1 USD = 2000 ZWL to 1 USD = 2500 ZWL, and there are no signs that it will stop anytime soon.
Official Rate Vs Parallel Market Rate
The divergence between the official exchange rate, set by the Reserve Bank of Zimbabwe (RBZ) auction, and the exchange rate on the parallel market is widening, causing confusion and uncertainty for businesses and individuals alike. The RBZ official exchange rate is at 1 USD = 1100 ZWL, which is divorced from the reality on the ground (1 USD = 2500 ZWL). The parallel market rate premium in Zimbabwe has reached unprecedented levels, with the exchange rate between the US dollar and the Zimbabwean dollar now at a premium of around 150% compared to the official rate set by the Reserve Bank of Zimbabwe (RBZ). This means that on the parallel market, individuals and businesses are paying almost two and a half times the official rate for US dollars.
Rapid Depreciation Within A Few Months
The Zimbabwean dollar has experienced a rapid depreciation in a short space of time, with the exchange rate between the US dollar and the Zimbabwean dollar on the parallel market increasing from 1 USD = 900 ZWL at the beginning of the year to 1 USD = 2500 ZWL in less than 5 months. This represents a significant devaluation of the currency in a short period of time, which has had a profound impact on businesses and individuals in the country. The depreciation of the currency has led to an increase in the cost of living, as prices for goods and services have risen sharply in response to the currency instability. It has also made it more difficult for businesses to operate, as they struggle to obtain foreign currency at reasonable rates, and has made it harder for individuals to access basic necessities such as food and healthcare. The situation underscores the urgent need for the government and the Reserve Bank of Zimbabwe to take decisive action to address the underlying economic issues that are driving the instability in the country’s currency.
Business Pricing Strategies
In light of the currency instability in Zimbabwe, many businesses have resorted to pegging their prices in US dollars, as this provides them with a measure of stability in a volatile economic environment. However, as the exchange rate between the US dollar and the Zimbabwean dollar continues to fluctuate on the parallel market, businesses that price their goods and services in ZWL must adjust their prices daily to reflect the new rate. This can create significant challenges for businesses, as they must constantly monitor the exchange rate and adjust their prices accordingly. It also creates confusion for consumers, who may struggle to understand why prices are changing so frequently. Despite these challenges, many businesses feel that pricing in US dollars is the best option available to them, as it allows them to avoid the risks associated with a rapidly depreciating currency.
Gold Coins & Tokens
The government of Zimbabwe has introduced physical gold coins and more recently, gold-backed digital tokens, as a way of stabilizing the Zimbabwean dollar. However, these measures do not seem to be having the desired effect, as the currency continues to depreciate rapidly. The introduction of gold coins was intended to reduce the demand of USD, as people can purchase the gold coins using ZWL. Similarly, the introduction of gold-backed digital tokens is intended to provide a secure and stable means of exchange. However, despite these efforts, the Zimbabwean dollar continues to experience rapid depreciation, as the underlying economic issues driving the currency instability remain unaddressed. This highlights the urgent need for the government and the Reserve Bank of Zimbabwe to take more comprehensive and effective measures to address the root causes of the currency crisis, and to restore stability to the Zimbabwean economy.
In addition to the underlying economic issues that are driving Zimbabwe’s currency instability, lack of trust in the government is also affecting the effectiveness of the measures introduced to stabilize the currency. The government’s past mismanagement of the economy and corruption, has eroded public confidence in its ability to manage the country’s economic affairs. This lack of trust has made it difficult for the government’s measures to gain traction, as many Zimbabweans are skeptical of the government’s intentions and are hesitant to trust the gold coins or the gold-backed digital tokens. This lack of trust further highlights the need for the government to address the underlying issues that are driving the currency crisis in order to restore confidence in the Zimbabwean economy and its currency.
Twice Bitten, Thrice Shy
Zimbabweans have experienced significant economic turmoil over the past 2 decades, losing their savings twice in a relatively short period of time. The first time was in 2008 when hyperinflation completely wiped out the value of the Zimbabwean dollar, leaving many people with worthless bank balances. The second time was in 2019, when the government converted US dollar balances held in local banks into Zimbabwean dollars at a 1:1 rate, despite the fact that the parallel market rate was already significantly different. This left many Zimbabweans with vastly reduced savings, as the Zimbabwean dollar began to depreciate rapidly against the US dollar on the parallel market. This experience has left many Zimbabweans feeling wary and distrustful of the government’s ability to manage the economy and ensure the stability of the Zimbabwean currency.
Without urgent action to address these issues, the Zimbabwean economy and its currency will continue to face significant challenges in the months ahead, with potentially severe consequences for the country and its people.
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