When the Reserve Bank of Zimbabwe (RBZ) was introduced Zimbabwe Gold, or ZiG, as the new currency last April, promised it would be the ultimate solution to a two-decade currency crisis. But less than a year later, ZiG has been a disaster, like all its predecessors, and now Zimbabweans are turning to banned night vendors for their groceries and other shopping needs.
When it launched in April, ZiG’s exchange rate against the US dollar was set at 13.56. But even before the new notes began to circulate, the exchange rate had pushed up to 23. Bad as it was, the ZiG’s depreciation was still not as high as its predecessor: the Zimbabwe dollar (ZWL). Between January and April last year, the ZWL’s exchange rate to the dollar increased from 11,500 to 40,000.
Zimbabweans feel the pinch, turn to illegal vendors
As the exchange rate rises, Zimbabweans feel the pinch. The most affected are the shops, which are mandated by law to accept ZiG, which are traded at artificially low official exchange rates on formal channels. To survive, these stores are forced to raise their prices, which alienates consumers. In turn, these consumers are heading to informal street vendors, whom the government has banned, but cannot effectively crack down on because of their sheer numbers.
The Retailers Association of Zimbabwe has denied the situation and warned that more stores are likely to close because the country’s business environment is “clearly unsustainable.”
Last October, Pick n Pay, the South African retail giant that operates over 70 stores in Zimbabwe, announced that it had written off its investments in the country due to the “deteriorating economic conditions”.
The big winners are the street vendors who can price their wares competitively and release ZiG for the US dollar. These vendors display their wares on sidewalks, open parking lots, and other available spaces on the busy streets. Because they are banned, they mostly go to shops in the evenings when there is less police control.
The sellers’ main attraction is their low prices. According to the Associated Press, they offer their goods at a fraction of the price in stores. A customer told AP that $20 worth of shopping on the streets was enough to sustain him for a week, while in the stores it only gave him “meat and spices, and they weren’t even that much.”
“I got everything I was looking for, and the price is really affordable. I actually managed to buy a handful for just $20. I even got my washing powder and dish soap. I think I’ll be doing this more often,” said the customer.
In addition to the lower prices, consumers prefer the suppliers because their USD prices are consistent. With ZiG, the customer has to recalculate the value of the items every time they visit the stores because the value fluctuates wildly so often.
The 2-decade currency crisis
The slow death of the retail industry is emblematic of two decades currency crisis that has plagued the southern African nation. In the mid-2000s, Zimbabwe’s economy was at its peak, and the currency was the first casualty. It collapsed completely in 2009, and the country turned to the dollar as legal tender. At the time, Zimbabwe’s inflation was at a staggering five billion percent. The situation was so bad that in some cases the money would do it lose value while Zimbabweans queued to pay for groceries, forcing them to go home hungry.
Since then, the USD has been legal tender, with the South African rand among the other popular options. However, beginning in 2019, the country reintroduced its local currency, culminating in the ZiG, which despite its purported backed by gold in reserve, has failed to hold its value.
Formal businesses feel the most heat as they are forced by law to accept ZiG, a huge cost that their informal competitors don’t have to deal with.
Grift Mugano, a local economics professor, explains: “In every transaction that a company makes in the formal setup, it makes an exchange rate loss that cannot be compensated. The big issue here is a currency crisis.”
The crisis is exacerbated by the country’s struggling economy, debt spiral (over 21 billion dollars), sanctions and unemployment.
“The situation is not sustainable. Not while Zimbabwe has economic growth of probably 3%, while the money supply is growing at a rate of over 500% per year. There is no way the ZiG or the exchange rate can be stable,” said Victor Bhoroma, an economist based in the capital Harare.
The country has considered making BTC legal tender to ease the currency crisis, but there is enough evidence from El Salvador to show that this would only fan the flames. Citizens have also turned to other digital assets, including BSV’s micropayments, but infrastructural constraints have limited the impact.
Watch: Improving logistics, finance with AI and blockchain
title=”YouTube video player” frameborder=”0″ allow=”accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share” referrerpolicy=”strict-origin-when-cross- origin” allowfullscreen=””>
