The Zimbabwe Gold currency has lost 80% of its value on the black market since its April launch, prompting retailers to condemn the government’s fixed exchange rate policy, which is undermining formal businesses. Retailers assert that the ZiG is not underpinned by gold, but rather government mismanagement, causing severe price volatility. Urgent calls for a market-based exchange rate approach have been made to avert business closures and ongoing inflation.

Since its introduction in April, the Zimbabwe Gold currency (ZiG) has experienced a significant decline, losing 80% of its value in the black market. Retailers point to the government’s maintenance of a formal exchange rate that is proving detrimental, leading to price instability and financial losses for formal shops. The Zimbabwean government had aimed for ZiG to stabilize the economy in light of soaring inflation, yet it seems to be perpetuating a volatile dual currency system. Major retailers, including South African brands such as TM Pick n Pay, OK, and Edgars, have expressed grave concerns to the Reserve Bank of Zimbabwe (RBZ) regarding the unsustainable nature of the official exchange rate, currently set at US$1 to ZiG13.9, which values the local currency higher than the rand. Retailers argue that this disproportionate official rate is contributing to dire market conditions. Suppliers are facing acute foreign currency shortages due to excessive fluctuations in ZiG exchange rates in the black market, which has become the primary standard for pricing goods. The black market is thriving alongside the formal economy, with current rates soaring to ZiG26 to the US dollar. Retailers observe that their suppliers are charging based on these illicit exchange rates, and they must either raise shelf prices or risk significant losses on sales, with estimates indicating potential losses of up to 50% on each transaction. The formal sector is driven to operate with a two-tier pricing system, dictating dramatically different rates for goods priced in local currency versus those in foreign currency. Some retailers have resorted to temporarily deactivating point of sale machines to abstain from transactions in ZiG. However, even as prices in hard currency increase, consumers are increasingly shunning these formal outlets. This trend is exemplified by the predicament of the popular Boom washing powder, which is priced unfavorably under official rates, forcing retailers to either hike prices or risk losing clientele to non-compliant competitors. Mike Ncube, a sole trader, remarked on the historical pattern of currency initiation in Zimbabwe, suggesting that this trend only leads to ongoing inflation cycles, saying, “They are backing their money with arrogance and not reality.” The Retailers Association of Zimbabwe (RAZ) has urged the government to permit market forces to dictate the exchange rate. Public trust in Zimbabwe’s local currency remains low due to past experiences with currency reforms. This ongoing mistrust mirrors the discontent seen previously, notably with the introduction of the bond notes in 2016, which ultimately necessitated a dollar component for salaries by 2019 to counteract inflationary pressures afflicting employees.

The context of this issue revolves around Zimbabwe’s ongoing struggles with inflation and economic instability, which have compelled the government to introduce new currencies such as the Zimbabwe Gold (ZiG). Intended as a stabilizing factor amidst rampant inflation, ZiG has paradoxically contributed to more severe price volatility. The dual economy, characterized by a legal yet artificially maintained currency alongside a resilient black market, illustrates the challenges of managing foreign exchange shortages and internal price standards in the context of a distrustful populace towards local currency systems. Retail businesses are particularly affected by the discrepancies between the official rates and black market rates, which has created a hostile environment for formal retail operations.

In conclusion, the introduction of the Zimbabwe Gold currency has not achieved its intended goal of economic stabilization; rather, it has exacerbated existing financial strains on formal retailers. The misuse of official rates compared to volatile black market values poses significant risks for businesses, leading to a survival battle that could ultimately result in widespread closures. The Retailers Association of Zimbabwe advocates for market-driven exchange rates to mitigate these challenges, reflecting a broader concern for economic sustainability and regeneration. The comments of retailers emphasize a critical need for government action to acknowledge current economic realities as opposed to relying on mere legislation.

Original Source: www.news24.com