After a tempestuous start to the year, black market rates seem to have settled somewhat around the 240-250 ZWL mark. We have observed most businesses using this same rate for the past couple weeks without variation. That has brought much relief in the market as it allows those who predominantly use the RTGS/ZWL to plan and budget somewhat. But why has the rate stabilised after all the turmoil? The RBZ has an answer.

Over the past two weeks, the government’s release of funds to the market was so limited to the extent that the parallel market did not move.

There has been a shortage of local currency on the market and that is the reason the parallel market has been stable for the past two weeks, the closed tap other than for salaries, did not see a lot of money coming onto the market.

The parallel market rates are key drivers of the exchange rate, but the key drivers of these rates is not even the government, its business. Unfortunately, what we have noticed is that most of the money that businesses get is coming from the government so the government has got projects like road construction, dam construction and they are paying to the farmers.

RBZ Governor Mangudya

Tacit admision

For a long time the RBZ has shirked blame for black market rate spikes choosing instead to blame retailers who they say are sabotaging the economy. In this latest tacit admission the RBZ fingers the real culprits. Businesses that partner with the government on infrastructure projects such as road construction and other infrastructural developments.

These entities get paid in RTGS/ZWL and in a bid to make sure their money doesn’t lose value they immediately start dumping the RTGS on the black market. These are large projects that involve lots of money and often this is enough to affect the rate resulting in spikes we see. This is essentially all because the government is printing for infrastructure.

Analysists and experts have been saying this for years. It’s the unchecked increase in money supply that is causing rate spikes and not just saboteurs. The saboteurs are being given ammunition by the government’s excessive printing. With the RBZ tightening this supply over the past few weeks we have seen immediate results.

This is a more effective solution compared to blunt instruments like SI 127 of 2021 which had very little effect on the rate. The problem now is that the government is in a catch 22 situation when it implements such a solution. The current solution is unsustainable as it means those businesses are being prevented from spending their money freely.

Related posts:

  1. Econet now offers the cheapest uncapped internet packages-sort of
  2. Bakers Inn reduces the price of bread to US$1
  3. Everything You Need to Know About Zimbabwe’s Revised Birth, Death and National ID Fees