Following our recent report on the Zimbabwean government’s decision to devalue the Zimbabwe Gold (ZiG) currency, we’ve observed significant developments in the foreign exchange market. If you missed the news somehow here is a shocker for you: The Reserve Bank of Zimbabwe has officially adjusted the interbank exchange rates with the ZiG Mid rate (the official rate now around $25 ZWG per US$1), bringing the official rate much closer to the previously prevailing unofficial rates which currently stand at around $30 ZWG per US$1. This move marks a pivotal shift in Zimbabwe’s monetary policy and has far-reaching implications for businesses and consumers. In this article we will examine some of the implications of this adjustment

New Official Exchange Rates

As of September 27, 2024, the Reserve Bank of Zimbabwe has published the following interbank rates:

USD/ZWG: 24.3902 (Bid: 23.7804, Ask: 25.0000)
GBP/ZWG: 32.6109 (Bid: 31.7943, Ask: 33.4275)
EUR/ZWG: 27.1659 (Bid: 26.4842, Ask: 27.8475)
ZWG/ZAR: 0.7047 (Bid: 0.6869, Ask: 0.7225)
BWP/ZWG: 1.8659 (Bid: 1.8168, Ask: 1.9150)

These new rates represent a significant devaluation from the previous official rate of 14 ZWG per USD and bring the official market much closer to the unofficial rate, which had reached around 30 ZWG per USD.

Implications of the Rate Adjustment

Narrowed Gap Between Official and Unofficial Rates The most immediate effect of this adjustment is the substantial narrowing of the gap between official and unofficial exchange rates. This convergence is likely to reduce arbitrage opportunities and potentially stabilize the currency market.
Potential Price Adjustments As noted in our previous article on supermarket pricing strategies, many retailers had been using higher implied rates for ZiG transactions. With the official rate now closer to market realities, we may see a recalibration of pricing strategies across various sectors.
Impact on USD Prices The closure of the gap between official and unofficial rates may lead to an adjustment in USD prices. Previously, some businesses had inflated their USD prices to compensate for the discrepancy in exchange rates. We may now see a stabilization or even a slight decrease in some USD-denominated prices.
Improved Forex Accessibility With a more realistic official exchange rate, businesses may find it easier to access foreign currency through formal channels. This could potentially reduce reliance on the parallel market and improve overall economic stability.
Short-term Inflationary Pressure While the rate adjustment aims to bring stability in the long term, it may result in short-term inflationary pressure as the economy adjusts to the new reality.
Increase in ZESA and other ZiG denominated prices-ZiG prices for Econet’s Private WiFi bundles, ZESA and other items priced primarily in ZiG will go up.
Reduction in arbitrage-remember those guys who bought bread in OK using swipe and then sold it outside in USD?

Sector-Specific Impacts

Retail Sector Retailers who had previously implemented dual pricing strategies or offered discounts for USD payments may need to revise their approaches. We expect to see more uniform pricing across different payment methods.
Manufacturing and Import-Dependent Industries These sectors may experience immediate cost pressures but could benefit from improved access to foreign currency for imports in the medium term.
Export-Oriented Businesses The devaluation could make Zimbabwean exports more competitive on the international market, potentially boosting this sector.
Banking and Finance The narrowed gap between official and unofficial rates may lead to increased formal forex transactions, benefiting the banking sector.

Frequently Asked Questions (FAQ)

Q: Will prices in supermarkets immediately reflect the new exchange rate? A: While some immediate adjustments are likely, especially for imported goods, full price adjustments may take time as businesses adapt to the new rates and clear existing stock.
Q: Is it still beneficial to hold USD over ZiG? A: The government has done the right thing by devaluaing the ZiG. However it will dissuaded people from holding their savings in this currency as it means there is a risk it will lose value.
Q: How will this affect remittances from abroad? A: People will continue to receive USD cash as usual so this shouldn’t have an impact.
Q: Will banks now have enough foreign currency to meet demand? A: The new rates should improve forex availability in the formal banking system, but the informal sector has always been precluded from getting foreign currency.
Q: How often can we expect such significant rate adjustments in the future? A: While future adjustments are possible, the goal of this move is to create more stability. Frequent large adjustments would undermine this objective.

Looking Ahead

The devaluation of the ZiG and the subsequent narrowing of the gap between official and unofficial exchange rates represent a significant shift in Zimbabwe’s monetary policy. While this move addresses some of the immediate concerns raised by businesses, particularly in the retail sector, it also introduces new challenges and opportunities.

In the coming weeks and months, it will be crucial to monitor:

The stability of the new exchange rate
Its impact on inflation and consumer prices
Changes in business practices, especially regarding pricing strategies
The overall effect on economic growth and foreign investment

At Zimpricecheck, we remain committed to providing timely and accurate information on these developments. We encourage our readers to stay informed and to consider the broader economic context when making financial decisions.

For real-time updates on prices and economic trends, consider subscribing to our WhatsApp channel. As always, we’re here to help Zimbabweans navigate the complexities of our evolving economic landscape.