In our latest Mbare Musika price survey, conducted on Tuesday instead of our usual Monday due to unforeseen circumstances, we uncovered a significant shift in the informal currency market. This development marks another chapter in Zimbabwe’s ongoing currency saga, following closely on the heels of the Reserve Bank of Zimbabwe’s recent devaluation of the ZiG.

The New Exchange Rate Reality

During our survey, we observed vendors consistently giving out $20 ZWG as change for purchases made with US$1, where the item cost US$0.50. This piqued our interest, as it deviated from the previous norm of $15 ZWG change for such transactions. Upon further investigation, we confirmed that vendors had indeed adopted a new exchange rate of $40 ZWG to 1 USD, effective from Monday 7 October 2024. Our impromptu survey of about 20 vendors at Mbare Musika revealed unanimous adoption of this new rate, showcasing the market’s efficiency in price and rate coordination.

Widespread Adoption and Implications

Extending our survey beyond Mbare Musika, we found that approximately 65% of vendors across various selling spots have embraced the $40 ZWG to 1 USD rate. The remaining 35% are still using the previous rate of $30 ZWG to 1 USD, though this is likely to change rapidly.

Interestingly, kombi operators on routes like Mbare National and Machipisa, where fares are typically US$0.50, are still using the $30 ZWG rate. However, given the trend we’ve observed, it’s probable that they will soon align with the new market rate.

Eroding Confidence in ZiG

This latest development is poised to further undermine confidence in the Zimbabwe Gold (ZiG) currency. We’ve already observed kombi conductors refusing ZiG payments, insisting on USD to avoid the volatility associated with the local currency. Some vendors and tuckshops have also started rejecting ZiG, opting instead to provide change in the form of goods like sweets or 1kg salt packages.

This trend aligns with our earlier observations of formal retailers implementing dual pricing strategies, further highlighting the challenges faced by the ZiG in gaining widespread acceptance and stability.

The RBZ’s Recent Move and Its Aftermath

Just a week ago, the Reserve Bank of Zimbabwe surprised the market by allowing the official exchange rate to move from $14 ZWG to about $25 ZWG per 1 USD. This decision came as a shock to many, given the government’s persistent claims that the ZiG was backed by gold, supposedly ensuring its stability.

The government’s lack of transparency regarding the exact mechanism of the ZiG’s gold backing and the amount of gold reserves has been a source of unease for many Zimbabweans. This latest market response, with informal traders pushing the rate to $40 ZWG, suggests a significant lack of confidence in the official narrative.

Implications for the Broader Economy

The rapid adoption of this new unofficial rate at Mbare Musika, often considered a bellwether for Zimbabwe’s informal economy, has several implications:

Accelerated Dollarization: The widening gap between official and unofficial rates is likely to push more transactions towards USD, undermining efforts to establish the ZiG as a viable local currency.
Inflationary Pressures: As the unofficial rate climbs, we can expect to see corresponding increases in the prices of goods and services, particularly those with import components.
Challenges for Formal Businesses: As we’ve previously reported, formal retailers are already struggling to navigate the complex currency landscape. This new development may force them to reconsider their pricing strategies further.
Policy Dilemma for Authorities: The growing disparity between official and unofficial rates puts pressure on the RBZ to either allow further devaluation or implement stricter controls, both of which come with significant economic trade-offs.

The adoption of the $40 ZWG to 1 USD rate at Mbare Musika serves as a stark reminder of the challenges facing Zimbabwe’s currency management efforts. It highlights the market’s lack of confidence in official policies and the continued preference for USD in everyday transactions.

At Zimpricecheck, we remain committed to providing timely and accurate information to help our readers navigate these complex economic times. For the latest updates on currency rates, market prices, and economic trends, keep checking our website and subscribe to our WhatsApp channel for real-time notifications.

See the latest informal sector rates