Here at Zimpricecheck.com, we keep a close eye on the ever-changing economic landscape of Zimbabwe. Recently, a significant, if somewhat quietly announced, development has occurred: the Reserve Bank of Zimbabwe (RBZ) has effectively liberalised the use of exchange rates for pricing. This means businesses now have greater freedom to set prices based on their own assessments of the exchange rate, rather than being strictly tied to the official interbank rate.

What Has Changed?

RBZ Governor John Mushayavanhu confirmed this shift, stating that businesses are “free to price their goods and services at whatever USD to ZiG rate they prefer without being limited to using the official RBZ exchange rate.” The key takeaway is that the central bank will not penalise businesses whose pricing models are not rigidly pegged to the official rate, provided their pricing remains “within reasonable margins”.

This contrasts with earlier implicit expectations. You might recall that, in the past, when the government was stricter with rates, businesses were unofficially “permitted” to use a rate within about 10% of the official figure. Many businesses, prioritising compliance and avoiding potential scrutiny, continued to operate within this unwritten rule, even after it officially lapsed.

Spotted in the Wild: Market Rates in Action

We observed this dynamic in action several weeks ago. Our team noticed Sai Mart (also known as Choppies) pricing their goods at a rate of around ZWG$36 to US$1. This was significantly closer to the prevailing parallel market rate, which then hovered between ZWG$35 and ZWG$38 per US dollar, compared to the official interbank rate of just under ZWG$27. This represents a margin of roughly 30% above the official rate.

More recently, OK Zimbabwe adopted a rate of ZWG$33 per US$1, demonstrating a gradual but consistent upward creep in the exchange rates used by retailers.

Why the Change of Heart?

So, what is driving this apparent change in policy? While the government has often sought to blame external factors for the instability of the local currency, the root cause often lies closer to home. Over the years the government has resorted to simply printing money to cover revenue shortfalls. In the past, the physical printing of money was the issue but in the wake of the GNU (Government of National Unity) a faster cheaper and more effective way of printing money was discovered. This was simply punching more zeroes into the computer. Whenever the government pays government contractors or creditors these are always in the local currency, ZiG now, ZWD, ZWL etc in the past. These quickly rush to the black market and exchange their worthless electronic ZIG for USD. This often causes the spike in the rates.

One major factor is tighter liquidity. By allowing businesses to use market-reflective exchange rates, the RBZ effectively acknowledges the scarcity of foreign currency within the formal system. This can help businesses cover their operational costs and maintain supply chains.

A Word of Caution: “Reasonable Margins” and Market Discipline

While the RBZ is granting greater pricing freedom, it is important to emphasise the condition of “reasonable margins”. RBZ Deputy Governor Innocent Matshe suggested a “realistic” exchange rate, based on economic fundamentals, of US$1 to ZiG22, suggesting that this is a level the market is expected to reach.

Governor Mushayavanhu warned against market exploitation with “inflated exchange rates.” According to him businesses engaging in this kind of practice would soon find themselves unable to compete, suggesting that market forces will keep businesses in check.

What This Means For You, the Consumer

Ultimately, the liberalisation of exchange rate use is a double-edged sword for consumers. On one hand, it could lead to increased price stability and availability of goods, as businesses are better able to manage costs and maintain supply. On the other hand, it could also result in higher prices in the short term, as businesses adjust to market-reflective exchange rates.

It also means that you, the consumer, need to be more vigilant than ever. Compare prices across different retailers, be aware of the prevailing exchange rates, and make informed purchasing decisions. Zimpricecheck.com is here to help you with exactly that – providing up-to-date pricing information and analysis to help you navigate the market.

The Future: Fuel in ZiG?

Interestingly, Governor Mushayavanhu also revealed that some fuel traders have approached the RBZ to offer to sell fuel in ZiG. The government hopes that, in time, all fuel dealers will voluntarily switch to selling in the local currency, obviating the return of long queues and fuel shortages, which have become a feature of the Zimbabwean economy in the past.

Whether this will happen remains to be seen, but it is indicative of the broader push to increase the use of the ZiG in the economy.

The government’s liberalisation of exchange rates is a significant development, with potentially far-reaching consequences. Only time will tell if this move will ultimately lead to greater price stability and economic growth.

FAQs

• What does “liberalising the exchange rate” mean?
  It means businesses are now allowed to use their own exchange rate when setting prices, rather than being strictly tied to the official government rate. This provides businesses more flexibility but also requires them to be responsible in their pricing.
• Will prices go up because of this?
  Potentially, yes, at least in the short term. Some businesses may adjust prices to reflect the actual cost of acquiring foreign currency. However, the government expects market forces to prevent businesses from overcharging.
• Is it now legal to use the black market rate?
  While not explicitly stated, the government appears to be tacitly acknowledging the parallel market by allowing businesses to use market-reflective rates. However, engaging directly in black market activities may still be technically illegal.
• How can I, as a consumer, protect myself from unfair pricing?
  Be vigilant. Compare prices across different retailers and stay informed about prevailing exchange rates. Use resources like Zimpricecheck.com to make informed decisions.
• Will fuel be sold in ZiG soon?
  Some fuel traders have expressed interest, and the government hopes this will become more widespread. However, it is not yet mandatory.