Two weeks ago, the weakening local currency was trading between $1,250 and $1,300 to the greenback, but the exchange rate has since depreciated to between $1,400 and $1,600 on the parallel market.. This means that the Zimbabwe dollar (ZWL) has lost ground by at least 20 per cent on the widely used parallel market in a very short space of time amid high speculation that huge amounts of local dollars were released into the market, raising fears the local currency is heading to extinction if the trend is not reversed.
Since the beginning of the year, the local currency has lost between 40 and 60 per cent and has seen its use in economic transactions drop to less than 20 per according to our own informal surveys. It seems that besides casual shopping in supermarkets and buying the occasional ZESA token (thanks to powercuts) there is very little you can do with the Zimbabwean dollar. The ratio is likely to have grown in favour of the US dollar which continues to see increased use as the exchange rate continues to depreciate.
Street dealers, who spoke to this Zimpricecheck, revealed that they were paying between $1 450 ZWL to $1 600 ZWL depending on the amount changing hands. These dealers then turn back and sell the USD hey buy to high volume buyers who pay them around $1 700 ZWL per USD. The dealers revealed that there were some out there who were paying higher rates without clarifying. It is not clear where these large sums of ZWL are coming from. Recently the RBZ announced a list of companies that they said were now blacklisted but that has barely had a dent in the rate.
Shop rates all over the place
Some shops are, however, still using rates below $1,200, according to a snap survey conducted we did. It is important to point out that shops using this rate are referring to cash transactions rather than electronic (or RTGS) transactions. Generally, cash is in low supply compared to electronic ZWL so rates for cash related transactions tend to be lower although they are not immune to rate movements. Shops were using rates all over the place with some demanding $1 400 ZWL per dollar while others were using rates as high as $1 800 ZWL.
The latest downward trajectory is, however, alarming as it has been steep in a very short space of time. Even more worrying is that authorities seem little concerned, describing the economic environment as calm and largely positive. In his presentation at a book launch last Saturday, the Director of Economic Research Division at the Reserve Bank of Zimbabwe, Dr Nebson Mupunga, said the exchange rate is depreciating as a result of the store of value aspect, where people are converting the local currency into foreign currency. However, despite the apparent shift and exchange rate depreciation, Mupunga believes the RBZ is doing a good job.
“The measures that we have taken since last year are actually helping the country. We are seeing prices significantly going down. In other words, we have put inflation firmly under control since September 2022. Reflecting these efforts, we have seen month-on-month inflation declining from a peak of 30.6 percent in June 2022 to a negative 1.6 percent in February 2023 and also in March when inflation was 0.1 percent.
“What it tells us is that prices have been firmly under control because I think for a long time we have not recorded inflation in the negative territory.
“With the measures that we are taking, measures that we are implementing, we see inflation falling, underpinned by a tighter monetary policy and also the bumper harvest we are expecting this year because of good rains,”
“We are also taking measures to smoothen exchange rate movements through the auction system we are running on a weekly basis. We are also supporting savings in local currency through instruments that compensate investors against exchange rate depreciation, for example the gold coins.”
Mupunga is not alone in believing that the central bank has done an excellent job of managing exchange rate stability. His sentiments are echoed by the Monetary Policy Committee which also seemed chirper and happier than usual in their usual out-of-touch pronouncements as seen in the latest recommendations they made. Their proclamations seem to border on delusional. Their calmness is, however, contrary to what is on the ground where the exchange rate has decimated local currency earnings and savings.
The depreciation of the local currency has also made it difficult for businesses to operate, as they have to contend with high input costs. The situation has been compounded by the fact that the government has been printing money to finance its operations, which has put further pressure on the exchange rate. The depreciation of the local currency is also having a negative impact on the country’s exports, as they are now less competitive on the international market.
The government and the RBZ need to take urgent measures to address the depreciation of the local currency, as it is having a negative impact on the economy.
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