The Zimbabwean government sees the US dollar as part of the problem. According to them informal businesses, even those who are not actually affected by movements in the exchange rates, still use the mighty dollar to peg their prices each morning with cascading effects throughout the economy. Fuelling inflation in the process.
The thing is its all the government’s fault. Let’s forget about who is to blame when it comes to the current mess. The fact is we are knee-deep in the mud. Even now the government insists that businesses must not use the USD as a base from which to calculate costs and prices.
Their argument is that take the example of beef farmers. The majority of what cattle need in order to grow is found in Zimbabwe. Only a small component in the form of veterinary supplies and fuel is priced in USD. If that component is 10% then only 10% of the price of beef must be affected by exchange rate fluctuations. Here is why that argument is not sound.
It all starts with the government
The problem is that it all starts with the government. They are the ones that are setting the prices of basic commodities against the USD. Everything from fuel, call tariffs, ZESA and now even bread is priced in USD even if the government gives us the unwieldy prices in Zimbabwean dollar terms.
Some businesses such as hotels and even fast-food businesses are now even allowed to continue charging in USD under the flimsiest of reasons. The price of fast food in Chicken Inn feels like its pegged against the dollar. That’s for sure.
Informal businesses and individuals are just following the government’s lead
Informal businesses are just following the government’s lead on this one. When the price of everything you need is being premised upon the exchange rate between the Zimbabwean dollar and the USD what choice do you have?
Then there is also the little matter of inflation. With the local dollar falling at a record pace, informal businesses and people are just looking for a an anchor in this dark cold economy. Again the government does it with fuel and everyone knows it. So everyone is doing it.
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