Harare – In a dramatic move reflecting the deepening economic woes gripping Zimbabwe, the Reserve Bank of Zimbabwe (RBZ) has devalued the gold-backed ZiG by a staggering 44%.
The official exchange rate now stands at 24.39 ZiG to the US dollar, a sharp drop from the previous rate of 13.98. State-owned enterprises ZBC and ZINARA wasted no time in adjusting their fees upwards, reflecting the new, devalued rate.
This drastic measure comes after months of mounting pressure on the ZiG, the nation’s sixth attempt at a local currency since 2009. Despite initial promises from RBZ Governor John Mushayavanhu that lessons had been learned from past failures, the ZiG has struggled to find stability amidst persistent inflationary pressures and a widening gap between the official and parallel market exchange rates.
Friday’s announcement, communicated through a directive to banks and financial institutions, effectively confirms the devaluation, though the RBZ has stopped short of explicitly stating so.
Governor Mushayavanhu, in a statement, highlighted the central bank’s efforts to combat inflation, including allowing “greater exchange rate flexibility, in line with the increased demand for foreign currency in the country.”
The devaluation follows a period of relative economic calm between April and mid-August 2024. However, as outlined in the RBZ’s statement following the Monetary Policy Committee (MPC) meeting on 27 September 2024, resurgent exchange rate pressures, a widening parallel market premium, and rising inflation have forced the bank’s hand. Monthly inflation, which averaged -0.82% between May and July, spiked to 1.4% in August and is projected to climb further in September.
Despite a 13.4% year-on-year increase in foreign currency inflows to US$8,465 million in the first eight months of 2024, the parallel market for foreign exchange continues to thrive. The ZiG trades at a premium exceeding 100%, reaching 30 ZiG per US dollar on the black market. Retailers have openly defied government directives to price goods at the official exchange rate, opting instead to use US dollar pricing or adjusting ZiG prices to mirror the parallel market.
In response to these challenges, the MPC implemented a series of measures, including a significant hike in the Bank Policy Rate from 20% to 35% and an increase in statutory reserve requirements for demand and call deposits to 30%, effective immediately.
“The MPC is convinced these measures will help address emerging exchange rate risks, anchor inflation expectations, and stabilize prices in the near to short term,” Governor Mushayavanhu stated.
Further measures include a reduction in the allowable foreign exchange for individuals travelling abroad, from US$10,000 to US$2,000. The move towards greater exchange rate flexibility is also seen as an attempt to manage the increasing demand for foreign currency.
The devaluation underscores the RBZ’s ongoing struggle to stabilise the ZiG, which launched in April 2024 at a rate of 13.56 to the dollar. Thursday saw the ZiG trading at 13.9883 before plummeting to 24.3 following the RBZ’s announcement. This drastic step is widely viewed as a direct response to escalating inflation and the increasing difficulty of enforcing official exchange rates in the market.
The swift reaction of state-owned enterprises like ZBC and ZINARA, who promptly increased their fees to reflect the new exchange rate, highlights the immediate impact of the devaluation. While some retailers followed suit, others, including insurance companies and some fast-food outlets, were slower to adjust, creating brief opportunities for those seeking to exploit the rate disparity.
