Over the past couple of weeks the official rate has been moving upwards and now shops like Pick N Pay (TM) are now using a rate of about $675 ZWL per 1 USD. That is remarkable because just over a week ago most street foreign currency dealers were paying roughly that amount to whoever was desperate enough to sell to them. Unofficial rates have started moving again but this time around they are being driven by something a little different. With the official rate constantly on the rise- black market dealers have to offer more or lose to official buyers and supermarkets!

The rate being used by Pick N Pay on 21 September 2022

Why are shops using such a high rate?

So most people often get confused by the many rates they see being used by various businesses. While officially the rate we are all supposed to use is the willing buyer willing seller rate the law allows businesses to charge plus or minus 10% on top of the official rate. So for example on 21 September the official willing buyer willing seller rate was $613.377 ZWL per 1 USD. This means that businesses can add $61.3377 ZWL on top of this rate of $674.7147 ZWL. That lines up perfectly with the rate that Pick N Pay is using at the moment but things can get even more confusing. The government has an IMT tax on transactions and sometimes banks charge their own transaction fees. In theory businesses can factor all this into their rate and it can get as high $690 ZWL or even $700 ZWL if you push it. To be fair even in other countries with functional economies there are always multiple rates in effect and used by different businesses.

The government’s policy is too good?

The government was really in a tight spot and they came up with nuclear options to arrest the rate. They suspended payments to a lot of contractors and put a squeeze on RTGS payments creating an RTGS drought on the market by keeping it all locked up in their coffers. They could do this because they are the largest holders of RTGS. That strategy worked pretty well for weeks as the rise in unofficial rates slowed because of the liquidity crisis. Instead, the official rate swiftly moved and seemed like it would converge with the unofficial rate.

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Alarmed black market traders were now caught between a rock and a hard place. They either had to continue offering rates lower than the official rates and risk losing clients to the official channels or hike their own rates. With street rates rising to $800 ZWL for the first time in a while it seems they have chosen to hike their own rates. This will make for an interesting few weeks because on one hand if the government does not turn the RTGS tapes back on those street market dealers might find it hard to source the RTGS to buy more USD. On the other hand the informal sector is still finding it hard to access foreign currency through official channels. Haughty officials like our Finance Minister keep ignoring the informal sector. The informal sector might keep buying from the black market where they can get unfettered access to foreign currency and thus we will see rates rise up again even without more RTGS in the market. Or it could be worse.

The worst thing that can happen is that even formal businesses start to see a rise in the usage of US dollar purchases even in the formal sector at the expense of the ZWL. More usage of the US is essentially called dollarisation. That is what the government of Zimbabwe has been fighting all along because wider adoption of the dollar means they have less control of the economy. Most US dollar transactions are in the form of cash. Dollarisation would mean for example less IMT tax. Ironically dollarisation is the very thing that would kill black market traders too. With everyone using mostly USD most traders would be relegated to the cross rate market changing USD into Rands. That’s a very dull and not so lucrative market. They make more money swindling us with fast-moving rates than they would this way.