Looking for millionaires? Zimbabwe has plenty of them as currency crashes

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Looking for millionaires? Zimbabwe has plenty of them as currency crashes

11:05 CAT | 31 Jan 2024

FILE - A street vendor counts out Zimbabwean 50 dollar banknotes in the central business district of Harare. [File photo: Bloomberg]

Local unit falls past Z$10,000 per US dollar in official trade

Plunge evokes memories of past, signifies economic hardships

Zimbabwe’s currency plunged to a new low reawakening bitter memories of the past and bringing into focus the poor state of the economy.

The local unit on Tuesday weakened past 10,160 per US dollar in the spot market for the first time since it was reintroduced in 2019, meaning that US$100 is now worth a bit more than one million Zimbabwean dollars.

The depreciation underpins the economic hardships in the southern African nation of around 16 million people.

The currency has lost almost 40% of its value against the dollar on the official market this year, making it the world’s worst performer. The parallel market rate long passed this milestone and is trading at between Z$12,000 to Z$14,000 according to ZimPriceCheck.com, a website which monitors both official and unofficial exchange rates.

Its slide means that to buy a loaf of bread in the local currency, you need to count out 100 bills of the highest denomination. That’s evoking painful memories of the past in a country where more than a third of people live below the poverty line.

In 2008, when hyperinflation prompted the central bank to issue a 100 trillion dollar note, pensions were wiped out and many people resorted to barter.

The local unit was scrapped a year later in favor of the US dollar before being reintroduced a decade later.

It has been volatile ever since, even as authorities have taken steps to stabilize the market. Those included mandating corporates to pay taxes in Zimbabwe dollars and raising interest rates to the then-highest in the world.

Last year the greenback again replaced the Zimbabwean dollar as the most-used currency in the southern African nation amid surging inflation.

Day-to-day transactions are becoming increasingly hard to comprehend, as more zeros are added to the prices of goods in supermarkets and restaurants to keep track of the domestic currency’s weakness. Delta Corp Ltd., a listed beverages maker, announced on Jan. 25 that it will switch to reporting in US dollars in its financial statements.

The local dollar’s depreciation signals another year of “severe devaluation,” IH Securities Ltd., a Harare-based brokerage, said in its latest report to clients.

“It is difficult to predict where the exchangerate may end up by year-end, but it is informative that last year the parallel rate fell almost ten-fold, which is a concerning metric,” Lloyd Mlotshwa, the head of research at the brokerage, said by phone on Tuesday.

Banks are also frequently revising transaction limits upwards. Still, the situation is “nowhere comparable” to 2007 and 2008, according to Lawrence Nyazema, president of the Bankers Association of Zimbabwe.

“Our systems can handle everything,” he said in an interview, while urging authorities to deal with Zimbabwean-dollar inflation to help bring predictability to the local currency — the primary reason why citizens continue to shun it.

“At whatever level the rate is, we just need to stabilize it,” Nyazema said.

Source: Bloomberg