News / Local
Zimbabwe central bank must consider introducing a ZW$500 000 note
22 Oct 2023 at 09:06hrs | Views
This week, a prominent price monitoring thinktank emphasized the need for the Reserve Bank of Zimbabwe (RBZ) to contemplate the introduction of a ZW$500,000 note as the Zimbabwean currency continues to suffer from severe depreciation throughout the year.
According to the official exchange rate on Wednesday, which stands at US$1:ZW$5,639.23, ZW$500,000 translates to approximately US$88. This ongoing depreciation, both officially and within the dominant forex exchange black market, has eroded consumer purchasing power. On the official market, the currency has depreciated by over 70%, while on the black market, it has plummeted by 700% since December, with the current rate at about US$1:ZW$8,000 compared to US$1:ZW$1,000 just ten months ago.
In its weekly update, Zimpricecheck pointed out that the highest denomination in circulation, the ZW$100 note, is now only worth about US$0.02, causing complications in everyday transactions. Zimpricecheck, known for monitoring price trends in Zimbabwe, suggested that "If the government and the RBZ were honest with themselves, they would have a ZW$500,000 note in circulation now," highlighting that even based on the government's official exchange rate, such a note would still be less than US$100.
The Zimbabwean dollar has depreciated by an average of 35% against the US dollar since January, while the cost of living has increased by an average of 18.61% during the same period. The rapid growth in money supply is a driving factor in this depreciation, with monthly supply increasing by over 500% in the first half of the year, reaching ZW$14.27 trillion, compared to December 2022 figures.
The Zimbabwe Coalition on Debt and Development (Zimcodd) predicts that the pressure on the Zimdollar's depreciation will persist in the coming months due to various factors, including increased fiscal spending, challenges related to climatic and energy shocks, public debt concerns, global geopolitical instability, and multiple exchange rates in the economy. Zimcodd attributes the recent depreciation to government payments to contractors and service providers, market sentiment, and negative perceptions driven by disputed elections and excessive rent-seeking.
The currency volatility has led to rising business expenses, impacting listed firms on the Zimbabwe Stock Exchange. For example, Delta Corporation Limited saw a significant increase in net monetary losses and finance charges. British American Tobacco Zimbabwe (BAT) also experienced a widened net monetary position and increased costs, particularly due to currency volatility and liquidity constraints.
The ongoing challenge is that, despite about 80% of the economy being dollarized, firms are still required to account in the local currency, leading to various distortions. Some industries have adopted parallel forex rates, which are higher than the official rate, further complicating pricing and transactions in the economy.
The Financial Intelligence Unit reports that over 200 companies have faced administrative sanctions for manipulating the exchange rate this year, with some pharmacists charging rates as high as US$1:ZW$12,000 and ZW$15,000. The Confederation of Zimbabwe Industries CEO, Sekai Kuvarika, acknowledges that currency distortions continue to affect manufacturers, with a tightening liquidity squeeze and reduced consumer demand for products intensifying the challenges.
According to the official exchange rate on Wednesday, which stands at US$1:ZW$5,639.23, ZW$500,000 translates to approximately US$88. This ongoing depreciation, both officially and within the dominant forex exchange black market, has eroded consumer purchasing power. On the official market, the currency has depreciated by over 70%, while on the black market, it has plummeted by 700% since December, with the current rate at about US$1:ZW$8,000 compared to US$1:ZW$1,000 just ten months ago.
In its weekly update, Zimpricecheck pointed out that the highest denomination in circulation, the ZW$100 note, is now only worth about US$0.02, causing complications in everyday transactions. Zimpricecheck, known for monitoring price trends in Zimbabwe, suggested that "If the government and the RBZ were honest with themselves, they would have a ZW$500,000 note in circulation now," highlighting that even based on the government's official exchange rate, such a note would still be less than US$100.
The Zimbabwean dollar has depreciated by an average of 35% against the US dollar since January, while the cost of living has increased by an average of 18.61% during the same period. The rapid growth in money supply is a driving factor in this depreciation, with monthly supply increasing by over 500% in the first half of the year, reaching ZW$14.27 trillion, compared to December 2022 figures.
The Zimbabwe Coalition on Debt and Development (Zimcodd) predicts that the pressure on the Zimdollar's depreciation will persist in the coming months due to various factors, including increased fiscal spending, challenges related to climatic and energy shocks, public debt concerns, global geopolitical instability, and multiple exchange rates in the economy. Zimcodd attributes the recent depreciation to government payments to contractors and service providers, market sentiment, and negative perceptions driven by disputed elections and excessive rent-seeking.
The currency volatility has led to rising business expenses, impacting listed firms on the Zimbabwe Stock Exchange. For example, Delta Corporation Limited saw a significant increase in net monetary losses and finance charges. British American Tobacco Zimbabwe (BAT) also experienced a widened net monetary position and increased costs, particularly due to currency volatility and liquidity constraints.
The ongoing challenge is that, despite about 80% of the economy being dollarized, firms are still required to account in the local currency, leading to various distortions. Some industries have adopted parallel forex rates, which are higher than the official rate, further complicating pricing and transactions in the economy.
The Financial Intelligence Unit reports that over 200 companies have faced administrative sanctions for manipulating the exchange rate this year, with some pharmacists charging rates as high as US$1:ZW$12,000 and ZW$15,000. The Confederation of Zimbabwe Industries CEO, Sekai Kuvarika, acknowledges that currency distortions continue to affect manufacturers, with a tightening liquidity squeeze and reduced consumer demand for products intensifying the challenges.
Source - the independent
