As most of you would have probably noticed by now, the black market rates for Cash, Swipe, ZIPIT and Ecocash seem to have fallen over the past week. At one point the traders were paying as much as US$950 per 1 USD but are now paying around $800 ZWL per 1 USD. Even a number of shops have also adjusted the rates they use to set prices downwards. This happened a week after the RBZ started selling Mosi oa tunya gold coins prompting a lot of people to claim that gold coins were the reason rates were falling. This is simply not true.

It is a lie…

The argument being presented by these people is that since the gold coins are being sold in ZWL at the official rate companies that normally fuel the black market are rushing to buy these instead of expensive foreign currency from the black market. Without any buyers for their foreign currency, it is claimed, black market dealers are being forced to reduce their asking rates. In order to make a profit, these dealers are then in turn paying reduced rates to people who sell them foreign currency on the streets.

It all sounds very learned and plausible but I can state with absolute certainty that the gold coins going on sale is not the reason why the rate has fallen to current levels. It is a simple matter of a few calculations:

  • The RBZ gold coin was selling for about US$1 800 when they were unveiled.
  • The RBZ issued 1 500 of these coins and has promised to issue 2 000 more. It is not clear whether these have been minted and sold yet but it seems unlikely. It does not matter though as we will prove shortly.
  • The rate during the sale was around $430 ZWL per 1 USD. You could add cents to the figure but it will just muddy the waters without really making much of a material difference so we will stick with a rate of $430 ZWL
  • This means that a total of US$2 700 000.00 (US$2.7 million) was made from the sale of the coins assuming 1 500 were sold. Even if you want to be generous and include the 2 000 coins and claim these have been sold too you get a total of US$6.3 million
  • In ZWL terms the numbers actually sound more impressive. $1 161 000 000 ZWL in other words $1.2 billion ZWL if we assume 1 500 coins were sold or $2 709 000 000 ZWL or $2.7 billion ZWL
  • Now here is the fun part so try to keep up. Zimbabwe based on experience has a weekly foreign currency requirement of around US$35 million-$50 million based on data provided by the RBZ themselves. We can easily see this in past foreign currency auctions as well as other data.
  • During the week of 25 July 2022, the RBZ allocated a total of US$24 108 457.31 via their auction. Which was less than what those who participated in the auction wanted even after taking into account disqualified bids. If we include “forex” allocated through the sale of coins we get a total of either US$27 million or US$30 million.
  • In other words the government allocated a total of US$30 million during the week of 25 July at most. That is about US$10 million more than the average allocations these days but it is by no means the largest weekly allocation from the RBZ by any stretch.

In conclusion it is absurd to claim that an allocation of a mere US$27 million is responsible for causing the fall in rates we are seeing. During the months when the RBZ used to allocate more money than this the rates would rise because even these larger allocations were not enough to meet rising demand for USD.

The real reason why the rate fell

So if it’s not gold coins, what is caused the fall in rates? That is very easy to figure out. First you need to understand why the Zimbabwan dollar has been falling in value against other currencies. The main reason is excessive money “printing”. In Zimbabwe this happens when the Zimbabwean government “prints” money when it pays government contractors who provide services to the government via various contracts to several ministries. The biggest contantractors are those conducting infrastructure projects such as road repairs and dam construction. Normally these entities get paid in RTGS when the government enters zeroes in a computer. When they get paid the contractors rush to the black market and offload the RTGS in exchange for USD causing spikes in the rate.

On the 4th August, Finance Secretary Guvamatanga wrote to all ministries suspending these payments.

In this regard, Treasury is immediately suspending all payments to MDAs (ministries, Departments and Agencies) while awaiting your submission of reports of findings of the due diligence exercise on all running and future contracts with special focus on pricing. Going forward, you are required to seek Treasury approval on contract prices in order to ensure effective control in the utilisation of public resources as guided by the (Public Finance Management) Act

Part of the letter by Secretary Guvamatanga

That clears up the mystery of the fall in rates. All you need to do is replace the absurd idea of gold coins causing a fall in rates with payment to suppliers and the explanation will remain true. Contractors are no longer flush with cash so black market dealers are finding it hard to demand exorbitant rates they used to demand. They are now forced to sell their forex at lower rates which in turn means they are paying those selling USD to them less. That’s it! It has nothing to do with gold coins which are but a tiny part of the financial market.