Zimbabwe’s new currency, the Zimbabwe Gold (ZiG), has been a topic of heated debate since its introduction in April 2024. The Reserve Bank of Zimbabwe (RBZ) recently released its Mid-Term Monetary Policy statement, claiming widespread acceptance of the ZiG among businesses and the public. However, the reality on the ground paints a more nuanced picture of how the formal sector is navigating this new monetary landscape.

Acceptance vs. Preference

Our research suggests that the RBZ’s claim of 91% ZiG acceptance by June 2024 may not be far off the mark. However, this statistic doesn’t tell the whole story. While many Zimbabweans are willing to accept ZiG, they often prefer to do so at unofficial exchange rates rather than the official Willing Buyer Willing Seller (WBWS) rate published daily by the government.

This preference has led to a fascinating dance in the formal sector, where businesses are trying to balance profitability with compliance. Large retailers, operating under the watchful eye of the government, have developed strategies to navigate this dual-currency environment without overtly flouting official exchange rate guidelines.

The Pricing Dilemma

Our recent grocery survey revealed a significant increase in both USD and ZiG prices for everyday items. This spike can be attributed to the informal market rates, which have been hovering between 24 and 26 ZiG per USD. In contrast, the official Willing Buyer Willing Seller rate has consistently remained below 14 ZiG per USD.

Formal businesses have devised a clever workaround:

They set an “acceptable” exchange rate, typically between 14.50-15.00 ZiG per USD, which they believe won’t attract unwanted government attention.
They then price their goods in ZiG using the higher informal market rates as a benchmark.
Finally, they calculate USD prices using their “shop rate.”

This strategy protects businesses from potential losses when customers exchange USD on the black market for ZiG at high rates and then spend that ZiG in stores. However, it also results in inflated USD prices in formal shops. For instance, a 2L bottle of cooking oil now costs US$4.80 in OK Supermarket, up from US$3.20 in May. In comparison, USD-only “tuckshops” still offer the same item at US$3.00.

Selective Acceptance

Some businesses have taken a more direct approach to managing the ZiG dilemma. During our survey of agricultural inputs, we encountered interesting practices at Farm and City, one of Zimbabwe’s largest hardware chains. Price tags had been removed from shelves, requiring customers to inquire about prices for each item. More importantly, certain products, such as fertilizer, were not available for purchase using ZiG.

This selective acceptance of ZiG for different products highlights the challenges faced by businesses in sectors crucial to Zimbabwe’s economy. With agriculture being a cornerstone of the nation, the unavailability of fertilizer for ZiG purchases could have significant implications.

Similarly, Mahommed Mussa, another prominent retailer, has implemented strict ID requirements for ZiG card payments to combat arbitrage attempts.

The ZiG as a Transactional Tool

Despite the RBZ’s optimistic survey results, our findings suggest that most Zimbabweans view the ZiG primarily as a transactional tool rather than a store of value. The painful history of local currency devaluations has made people wary of saving in ZiG. Instead, they quickly convert their ZiG holdings into goods or services, such as buying ZESA tokens or airtime.

This behavior aligns with the recent trend of bread hoarding by currency traders, highlighting the creative ways Zimbabweans are navigating the complex monetary environment.

Conclusion

While the RBZ’s claim of high ZiG acceptance isn’t entirely inaccurate, it fails to capture the complex reality of Zimbabwe’s currency situation. The formal sector’s dance around the ZiG reflects a delicate balancing act between compliance, profitability, and practical necessity.

As Zimbabwe continues to grapple with its monetary challenges, it’s clear that the journey towards true currency stability and acceptance is far from over. The formal sector’s adaptations to the ZiG era demonstrate both the resilience and the ongoing struggles of businesses in this unique economic landscape.

For the latest updates on Zimbabwe’s official and unofficial exchange rates, visit our daily exchange rate tracker.