Why our unofficial rates are sometimes different from street black market rates

Our official and unofficial rates page which can be found here is easily one of the most visited pages on this site. These days it has become one of the most controversial pages on our site and I must insist it is through no fault of our own. For the most part the rates we show on this page tend to correspond with the rates you would get if you were to go out and try to sell your USD on the streets of Harare. That changed during the second week of August when people started to see a divergence between rates on the streets and rates show on this page. Some people started saying our rates were inacurrate. Others have been more aggressive accusing us of economic sabotage.

None of this is true. We are not economic saboteurs nor are the rates we show on this page inaccurate. We carefully keep these rates on this page on a regular basis. So why are the rates on this page not falling when black market street rates have fallen? Well there are a couple of reasons for that:

• First of all the rates we show on this page have fallen from $1 000 ZWL per 1 USD at the start of August to the current $850 ZWL
• Our unofficial rates are not black market street rates you get when you go and sell your USD on the streets of Harare
• They are instead based on rates that shops use when converting between USD and ZWL prices.
• Shops like pharmacies and informal traders use these rates openly. Go to Mbare Musika right now. An item that costs US$1 will cost you $800 ZWL in bond notes/ZWL cash. It stands to reason that the rate in use here is $800 ZWL as to US$1. If you buy an item costing US$0.50 you get $400 ZWL cash change. In fact if you walk into a lot of shops right now you will be charged a rate of $1 000 ZWL per 1 USD. So for example paracetamol costs US$1 for 30 400mg tablets but you will be charged $1 000 ZWL if you attempt to pay using swipe.
• Formal retailers like Food World,Spar, OK and Pick N Pay use these rates behind the scenes too. They just do not go around telling people this because it is illegal. If they do not use these rates they will end up making losses or face issues restocking because a lot of manufacturers demand USD forex.
• So formal retailers use rates between $800-$1 000 when coming up with ZWL prices you see on those shelves. When you try to buy directly using USD they tell you the rate is $550 ZWL or similar because that’s what the law compels them to say. We do have our ways of deducing the original rate they used. Some of these ways include comparing what the shop in question charges.
• For example a shop we know (a famous national retailer) sells their 2 litre cooking oil for US$4.7 online but in their shop it sells for about $4 000 ZWL RTGS. This means that the shop is using a rate of $850 ZWL. You see where we are coming from now? We are not getting the rate out of thin air.
• The rate you get when you sell your USD on the black market is called the buy rate. It is the rate at which dealers are buying at. It is usually lower than the selling rate. The selling rate is the rate you pay when you pay when you get foreign currency from a forex dealer. That is standard practice even in formal circles. Yes even banks in other countries do it. It makes little sense to sell foreign currency at the rate you bought it at.
• This means that while you get maybe only $650 ZWL when you sell your foreign currency the dealers are selling at maybe $800 ZWL to businesses which translates to $850 ZWL when you factor in transaction costs such as the IMT tax and bank charges.
• These retailers are not idiots, they employ savvy accountants and finance managers who help to make sure that they balance two competing objectives:
  • Make sure they recoup all their expenses by charging prices that cover all the costs they incur in purchasing items they put on their shelves as well as cover overheads and provide them with an acceptable level of profit.
  • They charge the lowest possible price to make sure that they attract as many customers as they want. Charging steep prices will just drive customers away so it is not entirely accurate to say that formal retailers are profiteers. If they were people would simply avoid them altogether and go with tuckshops.
• It is also important to know that businesses are wary of the risk of unanticipated rate spikes that would result in exchange rate loses i.e. losses resulting from a negative movement in the exchange rate. To guard against such a movement in the rate they charge a rate that is slightly higher than the sell-rate.

In conclusion

In summary there are several reasons why the rate you see on our site does not accurately correspond to the black market rates. Among these reasons is the fact that the rate you get is the buy rate and the rate shown here is the sell rate as well as the fact that businesses use higher rates to cover transaction costs, IMT tax as well as guard against future rate spikes. We diligently monitor these rates and update them carefully on our site.