Zimbabwe Gold Currency Crisis: Retailers Sound Alarm as Economic Stability Wanes

Zimbabwean retailers have warned that the official exchange rate of the newly introduced Zimbabwe Gold (ZiG) is threatening their financial stability. Since its launch in April 2024, the ZiG has rapidly devalued, leading to price instability and a reliance on black market rates for goods pricing. Despite intentions to stabilize the economy, the ZiG is causing substantial operational challenges for formal retailers, who advocate for market-determined exchange rates to avert further economic decline.

HARARE – Retailers in Zimbabwe have expressed grave concerns regarding the official exchange rate of the new currency, the Zimbabwe Gold (ZiG), which they assert is leading them towards financial disaster. Launched in April 2024 to mitigate inflationary pressures, the ZiG has devalued rapidly, losing 80% of its value on the black market. This has resulted in significant price fluctuations and the emergence of a two-tier pricing system that serves to complicate retail operations. Formal retailers, including well-established brands such as TM Pick n Pay, OK, and Edgars, conveyed their challenges to the Reserve Bank of Zimbabwe (RBZ) this past week. They argued that the official rate of US$1 to ZiG13.9, which places the local currency at a higher value than the South African Rand, is impractical. Represented by the Retailers Association of Zimbabwe (RAZ), retailers highlighted that rather than stabilizing the economy, the ZiG has exacerbated price volatility and intensified existing operational hurdles. Suppliers now commonly reference the black market rate when pricing goods and raw materials, which currently exchange at ZiG26 to the US dollar, as opposed to the official rate. The retailers stated, “Our suppliers face a severe foreign currency shortage and excessive volatility in ZiG exchange rates on the black market, which has now become the basis of their pricing framework.” Despite the illegality of black market trading, it has become the primary means of securing foreign currency for numerous businesses within Zimbabwe. In response, retailers find themselves in a perilous position: they must either increase prices drastically to bridge the gap or incur losses of up to 50% per sale by adhering to the official exchange rate. Many suppliers maintain dual price lists, distinctly pricing products in both local and foreign currencies, with the latter reflecting the substantially elevated black market rates. Some retailers have opted to disable their point-of-sale machines to avoid transactions in ZiG, and others have witnessed a decline in customers opting for informal stores that bypass the use of the new currency altogether. Without adequate governmental protection, the formal retail sector is at risk of widespread closures. A particularly telling example involves the popular Boom washing powder, which wholesalers are pricing at a black market-influenced rate of ZiG102.45, while the official price would have only been ZiG47.46. Retailers now face the arduous decision of whether to sell products at a loss or to adjust prices in USD, a choice that could dissuade potential customers. Local trader Mike Ncube articulated a sentiment shared by many concerning the deteriorating trajectory of ZiG, drawing parallels with historical currency failures in Zimbabwe’s economy. “All the currencies introduced in Zimbabwe with the slashing of zeros and renaming of money have led to one thing—spiraling inflation,” Ncube remarked. “The government is backing their money with arrogance, not reality.” RAZ has implored the government to abandon its rigid stance on the exchange rate and allow market forces to dictate currency values, a recommendation that has been reiterated since 2016 when the bond note was initially introduced, a currency that similarly failed to retain its value against the USD. As retailers navigate these challenges surrounding the ZiG, there exists a prevailing fear that without immediate reforms regarding the exchange rate system, Zimbabwe’s economy is poised to encounter further destabilization.

The Zimbabwe Gold (ZiG) was introduced in April 2024 as part of the government’s strategy to combat high inflation and restore economic stability in Zimbabwe. However, the rapid depreciation of the ZiG on the black market has exposed systemic issues within the economy, leading to significant price instability, particularly for formal retailers. The RBZ’s fixed exchange rates are increasingly viewed as unrealistic in the face of market dynamics and ongoing shortages of foreign currency. This situation has compelled suppliers and retailers to adopt the black market rates for pricing, further complicating the economic landscape and threatening the viability of formal retail businesses.

In conclusion, the situation surrounding the Zimbabwe Gold (ZiG) poses significant challenges to formal retailers in Zimbabwe. The stark disparity between official and black market exchange rates is leading to substantial financial strain on retailers, as they grapple with the choice of pricing strategies. The Retailers Association of Zimbabwe has urged the government to reconsider its stance on exchange rates to prevent further economic destabilization. Without swift governmental action, the formal retail sector faces potential collapse, echoing historical patterns of currency failures in the country.

Original Source: www.thezimbabwemail.com