Yesterday, Monday 30 September, we observed there was a lot of confusion in the informal sector over which rate to use following the Reserve Bank of Zimbabwe’s recent 43% devaluation of the Zimbabwe Gold (ZiG) currency. In our most recent survey, we observed that there seems now to be a widespread rejection of the ZiG across the informal sector. This development marks a significant escalation in Zimbabwe’s ongoing currency crisis and raises serious questions about the viability of the ZiG as a national currency.

Concerning Market Reaction

When the ZiG was devalued it seemed like the formal sector was waiting for it to happen. They sprang into action with most prices and even ZINARA quickly adjusting their pricing to match the new rate. Even ZESA adjusted their tariffs yesterday. The informal sector was characterised by confusion as people started using different rates. $30 ZWG was the least and $50 ZWG was the highest. Now we, and it seems other publications too, have observed that multiple economic actors, including supermarkets, vendors, commuter omnibus operators, and tuckshops, are now refusing to accept ZiG payments.

Key observations include:

USD Preference: Traders are increasingly insisting on USD payments, leaving many Zimbabweans who hold ZiG in a precarious position.
Transport Sector Shifts: Some transport routes that previously charged ZiG10 now demand US$1, reflecting a complete abandonment of the local currency in favour of more stable US dollars. Passengers are forced to pair and exchange ZiG among themselves at the new rate of $15 ZWG per US$0.50
Uncertainty in Pricing: Tuckshop operators express difficulty in determining appropriate exchange rates, leading to a hesitancy to accept ZiG due to fears of further devaluation.

Government’s Role in Undermining Confidence

Critics argue that the Zimbabwean government has played a significant role in undermining confidence in the ZiG from its inception. Notably:

Essential government services, including passport applications and customs duties, do not accept ZiG payments.
Key commodities like fuel are priced exclusively in USD.
Rentals and other significant transactions are often conducted in foreign currency.

This apparent lack of faith in the ZiG by the government itself has sent a clear signal to the public about the currency’s stability and reliability.

Historical Context and Public Sentiment

The current rejection of the ZiG is not occurring in a vacuum. Zimbabweans have experienced multiple currency crises and have lost savings due to previous currency changes. This history of monetary instability has created a deep-seated mistrust in local currency among the population.

As we noted in our earlier analysis of the ZiG devaluation, the sudden change in exchange rates has led to significant challenges for both businesses and consumers. The informal sector, in particular, has struggled to adapt, with multiple exchange rates in use and widespread uncertainty.

Economic Implications

The widespread rejection of the ZiG has several immediate and potential long-term implications:

De Facto Dollarization: The economy may shift further towards dollarization as businesses and individuals seek to protect themselves from currency volatility.
Increased Economic Hardship: Those holding ZiG savings or receiving ZiG salaries may find themselves increasingly unable to conduct daily transactions.
Potential for Hyperinflation: If confidence in the ZiG continues to erode, there’s a risk of rapid inflation as people rush to convert their holdings to more stable currencies.
Impact on Government Operations: The government’s ability to collect taxes and fund operations in local currency may be severely compromised.

Ripple Effects on Essential Services

The currency crisis is already having knock-on effects on essential services. As we reported earlier, ZESA has significantly hiked its electricity tariffs in response to the ZiG devaluation. This increase in utility costs, combined with the broader rejection of the ZiG, is likely to put additional strain on households and businesses alike.

Our analysis of the new ZESA tariffs showed a significant increase across all consumption bands, with the cost for 200 kWh jumping to 650.00 ZiG (US$26.10). This price hike, coupled with the currency instability, creates a perfect storm of economic pressure for Zimbabwean consumers.

Looking Ahead

The current situation poses significant challenges for Zimbabwe’s economic stability and the credibility of its monetary policy. Key questions moving forward include:

How will the RBZ and government respond to this widespread rejection of the ZiG?
Can confidence in the local currency be restored, or is full dollarization inevitable?
What measures can be taken to protect vulnerable populations who may not have access to foreign currency?

At Zimpricecheck, we remain committed to providing timely and accurate information as this situation unfolds. We encourage our readers to stay informed and consider the potential impacts of these currency developments on their financial decisions.

For the most up-to-date information on currency exchange rates, prices, and economic developments, continue to check our website regularly or subscribe to our WhatsApp channel for real-time updates.