It took some time but the government of Zimbabwe has finally made a u-turn on the notorious Statutory Instrument 127 of 2021. The law is now scrapped and shops are no longer required to use the official rate when converting between ZWL and USD prices. Instead, they can now use the willing buyer willing seller exchange rates being used by banks on a daily basis. Shops are allowed to use a rate that is within 10% of the prevailing willing buyer willing seller rate. This is just one of the latest u-turns by the government with others including the scrapping of the kombi ban among other shockingly different measures.
The government of Zimbabwe has been naughty these past few years and recently their naughtiness came to head. The economy has been in turmoil thanks to a lot of confidence shaking measures such as the banning of the multi-currency system in 2019, the kombi ban and of course the cream on the cake. SI 127 of 2021 which forced companies to use the official exchange rate to price their goods. That hasn’t worked well with most companies simply ignoring it even with the government promising to rain down fire and fury on those found violating the law.
The willing-buyer-willing-seller interbank foreign currency arrangement has assisted in the price disvovery mechanisms of the exchange rate in the economy.
In this regard, retailers and wholesalers are, with immidiate effect, allowed to benchmark their pricing to the average interbank rate with a maximum allowance variance of 10%
This would ensure increased discipline and a level palying field inthe pricing of goods and servicds in the market under a dual currency system.
The president’s speech on the issue
The president might as well have said what we have all been saying. Forcing everyone to use the so-called auction-rate was now creating distortions in the economy. As I pointed out in a previous article these distortions were now actually helping importers and hurting exporters thus actually working against the government’s purported aim to boost local production. Furthermore, the usage of the official rate forced a lot of shops to price their goods using the local ZWL unit.
Given the low rate, goods would thus be expensive in USD and most people would be forced to use ZWL when buying from supermarkets. Instead of creating demand for the local unit as some thought it would, it simply boosted the black market with traders milling around supermarkets offering to swipe for USD customers at higher rates than the official rate. The shop would still be saddled with USD which it would again need to buy from the black market traders who now stood in the middle of them and their customers.
In the grand scheme of things, forcing everyone to use the very low, rigged and baseless auction-rate simply favoured the black market which played havoc with rates which, as the president notes, rose sharply at times for no apparent good reason except speculation. The willing buyer willing seller rate is a bit more realistic although for reasons we shall look at in a coming article it is still low.
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