It has been weeks since the RBZ governor introduced the foreign currency auction and banned cash in and cash out transactions effectively crippling the activities of most black market traders and innocent businesses and individuals in the process. Now in an recent interview featured in the Herald the RBZ governor claimed that a lot of retailers were now using the official rate. He specifically cited OK supermarket and Mbare Musika traders. He is wrong.

We have noticed that a number of large retail operators, that includes OK Zimbabwe and others, their pricing is now linked to the exchange rate, even markets in Mbare that are now using a cash rate of $70 to US$1, which is in line with the auction market rate, but then there are some businesses that are still using an implied rate of $80 to $90 per US$1.

These rates are higher than the auction rate, although they have gone down from where they were, which was between $100 and $120 against the US dollar and any coming down of the rates means stability is coming.

But we want to see all business entities exercising self-discipline; because you cannot come to the auction and buy (forex) at $70 to US$1 and benefit from exchange gain by charging higher prices.

What he said

First there is no one official rate!

We have been over this countless times. The way the current auction system works means that there is no official rate per se despite what the RBZ governor is saying. Each bidder gets foreign currency at their own bid rate. This rate varies and after the auction the bank takes the various rates and calculates an average calling it the official rate. For a detailed explanation see this article. So for the governor to ask businesses to use an official rate when there is none is ridiculous.

The good news is that with each subsequent auction the gap between the highest and lowest rate is narrowing. The hope would be that the two will converge but that is unlikely to happen anytime soon. A lot of entities are still not allowed to take part in the auction which is biased towards large players. So yeah, you cannot bar businesses from taking part in the auction and then ask them to use auction rates when setting prices. The truth is even though it’s invisible now, the black market is very much active.

Then there is also the fact that during every auction we see a shortfall in the amount that buyers want versus what they are getting. It means that there is always a shortfall that has to be filled. That itch is probably being scratched by the black market.

Now about the Mbare Traders

First of all the governor is right. Right now the rate used to calculate prices is about $70-$75 ZWL. The devil is however in the details. This is a cash rate i.e. the rate between ZWL notes and US dollars. The rate has always been lower than the electronic rate. He cannot simply take credit for that. In fact, more often than not this rate has always been below the interbank rate. Yes, even last year the rate was always below the interbank rate. Only when the governor took the misguided action of freezing the official rate at $25 ZWL as to 1 USD was the cash (fomerly bond note) rate able to overtake the official rate.

Really, there is nothing unusual or significant happening here. People have always placed a premium on cash. This premium is currently around 50%! This means that in reality if you were to convert the rate of $70 ZWL (in cash) as to 1 USD you would get a rate of about $105 ZWL (in RTGS or electronic currency) as to 1 USD! Yes there is nothing low about that rate. It’s the RBZ’s own fault that people prefer cash really:

  • If you have cash you can spend as much as you want without the central bank placing arbitrary and random limits.
  • Most businesses will give you a massive discount as they also prefer cash which they can use to buy USD on the black market without the RBZ prying into their business
  • You don’t have to pay the onerous 2% tax
  • You don’t have to pay the massive bank charges that banks and mobile money operators now levy on their customers

We looked at supermarket prices, we don’t know what the governor is talking about

The governor also makes the claim that supermarkets are now using the official rate when charging prices. Of course they are! Again there is nothing unusual here. Supermarkets have always found a way to skirt the law while getting they want. Yes even OK. Most have a way to finally get foreign currency: officially or not and therefore have made the grim decision to charge prices in ZWL instead of USD. When you walk into the shop your USD will be converted into ZWL at the current official rate but make no mistake, the rate ZWL prices is far above the official rate. In fact you will be an idiot to buy using RBZ US dollars.

Again here we can prove that despite appearances the governor is wrong. There are two ways to prove this:

  • Comparing the supermarket prices versus “tuckshop prices” and from there gleaning the actual rate used by the supermarket to come up with the ZWL prices
  • Most shops have online stores where they sell using USD prices. You can use these prices and compare them against the in-store Zimbabwean dollar prices.

So here are prices for OK using method 2:

  • Ekono Rice 2kg:
    • Shop Price $190 ZWL
    • USD price in the online store US$1.79
    • In-store price when you try paying using USD (190/72.15) US$2.60
    • Actual rate used to calculate price (190/1.79):106 ZWL as to 1 USD
  • Clover Creamer 1kg:
    • Shop Price $469
    • USD price in online store US$4.70
    • In-store price when you try to pay using USD cash (469/72.15): US$6.50
    • Actual rate used to set price $100 ZWL as to 1 USD


  • it has been a while since we saw this specific brand of creamer and would bet that the rate used to set price would be consistent with the first-rate of $105
  • If you use method 1 the rate actually climbs to an average of $120 ZWL per 1 USD. That actually makes sense:
    • Supermarkets have higher operating costs which are passed on to the customer and so have traditionally charged marginally higher prices
    • Selling in online stores gives you electronic USD which has a higher opportunity cost compared to cash.

The governor is wrong

As clearly demonstrated above, while the governor is right about what he is seeing, he is wrong about what it means. He is right about where the lots have fallen, but he is wrong about what the bones are saying.