The Struggles of Zimbabwean Retailers Amidst the Decline of ZiG Currency

Zimbabwe’s new currency, the Zimbabwe Gold (ZiG), has seen an 80% drop in value on the black market since its launch in April 2023. Retailers are calling out the government for maintaining an unsustainable official exchange rate, which is driving customers away from formal shops and propelling them towards informal markets. The Retailers Association of Zimbabwe warns that without changes to the currency system, formal retailers may face closure.

The Zimbabwe Gold (ZiG) currency, introduced in April 2023, has significantly depreciated, losing approximately 80% of its value on the black market, which retailers claim is eroding the viability of formal retail operations in the country. Despite the government’s intention to stabilize the economy and control rampant inflation through the official exchange rate of ZiG13.9 to US$1, the reality is that this system is causing instability and exacerbating price volatility due to the simultaneous existence of an active black market where the exchange rate currently stands at ZiG26 to the US dollar. Retailers, represented by the Retailers Association of Zimbabwe (RAZ), argue that the official exchange rate is not sustainable, leading to a disparity where suppliers and retailers must cope with a divided pricing structure; they are compelled to reference black market rates for the costs of goods and raw materials. Some formal retailers have adopted measures such as disabling point-of-sale systems to evade transactions involving the ZiG currency, and as a result, are losing customers to competitors willing to deal strictly in foreign currencies or operate off the black market. An example provided indicates that the wholesale price of a popular detergent, Boom, reflects this price inconsistency, translating to adverse financial implications for retailers who wish to comply with the official exchange rate. Market dynamics in Zimbabwe have historically demonstrated skepticism towards local currencies, culminating in resistance to negotiations premised on the ostensibly gold-backed currency. Experts and traders assert that the Zimbabwean government has historically relied more on proclamations than effective monetary policy, leading to cyclical patterns of inflation. This trajectory mirrors prior attempts at economic stabilization, where initiatives like the bond note ultimately necessitated reinstating a dollar component for transactions and wages.

The context of this article is rooted in Zimbabwe’s prolonged struggle with hyperinflation and the depreciation of its local currencies, prompting the government to issue the Zimbabwe Gold (ZiG) as a purported solution to stabilize the economy. The introduction of ZiG was met with skepticism among retailers and the general public, reflecting a historical pattern of distrust in local currencies, stemming from prior economic mismanagement and inflationary crises. The divide between the official and black market exchange rates underlines the difficulties faced by businesses that are forced to navigate such a dual system, frequently leading to financial losses and a marginalization of formal retail operations in favor of informal markets.

In summary, the introduction of the Zimbabwe Gold currency has not achieved its intended goal of stabilizing the economy and curtailing inflation, instead resulting in diminished trust amongst retailers and consumers. The stark contrast between official and black market rates has created a volatile environment that jeopardizes the existence of formal retail establishments. Market experts advise a policy shift that allows for a market-driven exchange rate to alleviate the pressures currently faced by businesses, as they struggle to survive under precarious economic conditions.

Original Source: www.news24.com