Zimbabwe’s currency has dramatically dropped in value. Read on to find out what happened!
On Monday, January 6, 2023, Zimbabwe’s currency took a dramatic plunge in price in the unauthorized market. This occurred after the central bank pushed for suppliers to avoid buying foreign exchange with the money that they had recently been given as payment from the government.
How much did Zimbabwe’s currency drop?
In the parallel market, the Zimbabwean dollar was trading somewhere between Z$950-Z$1,00 compared with the US dollar. This information came from a website called Zimpricecheck.com that monitors the official and unofficial rates of the currencies in the unauthorized market and provides updates on the prices of the service providers and the storing of a number of commodities in Zimbabwe. This covers everything from basic groceries to petrol, airtime, and even internet providers.
This is the lowest that the Zimbabwean dollar has ever traded on the forex market. The lowest price reached was a lot weaker compared with the official rate, which was 671 against the US dollar. This has given a unique opportunity for those involved in trading in the forex market to capitalize on this significant drop in the value of the currency if they can find information and perform accurate technical analysis on where the price may be heading in the near future. However, the price movement shows that it can change dramatically in a short period of time. As with any trade, it is about weighing up the advantages and disadvantages of a decision.
The history of Zimbabwe’s currency
Even as recently as May 2022, the Zimbabwean dollar was considered a stable currency after the introduction of gold coins by the government. This played an important role in reducing the prevalence of traders taking advantage of different prices across a number of different markets to make a profit, and was mainly aimed at stopping people taking advantage of this between the black markets and the official markets.
The recent turbulence in the market can be attributed to a reduction in the number of sales occurring in the foreign exchange market by the central bank. This lack of sales took place during the holiday period, which played the biggest role in the drop in value of the currency. This information came from a committee member of the monetary policy, Persistence Gwanyanya. The central bank will resume the forex auction which takes place every week. This will be the first time that the auction has been run in three weeks. The reason for this is that the central bank took a break from trading foreign exchange.
Gwanyanya has also stated the weakest part of the year for Zimbabwe’s currency in the foreign exchange market is usually the last quarter. During this quarter the demand is high; however, the inflow of foreign exchange is normally a lot lower. This isn’t the first time that efforts have been made to stabilize the value of Zimbabwe’s currency. Back in August 2022, payments for the suppliers to the government were halted by the treasury, with the goal of halting significant drops in the value of the Zimbabwean currency.
A lot of the blame for this disruption was placed on the companies that supply services and goods to the government. They were accused of taking advantage of the currency of the local region and charging ridiculously high prices. As a result of this fiasco, the Zimbabwean authorities took steps to prevent it from happening again by blacklisting businesses. A total of 19 businesses were blacklisted at the end of 2022. This means that these businesses were no longer allowed to sign state contracts. This was done in the hope of deterring other businesses from doing the same thing.
Although 19 businesses have currently been blacklisted, a number of sources have suggested that a lot more businesses will be banned from state contracts once investigations into the accusations are complete. It is unclear what the future for the Zimbabwean currency looks like; however, with the new precautions and steps that have been put in place, there is hope that the country will not see any more extreme currency drops in future.
The Zimbabwe dollar
From 1980 to 2009, the official currency of Zimbabwe was known as the Zimbabwe dollar (ZWD). This currency is well known for experiencing one of the highest inflation rises to ever occur. In 2009, Zimbabwe re-issued the Zimbabwean dollar (ZWL), which had 12 zeros removed. As a result of this move, the currency dropped significantly and continued to suffer in value for the next 10 years. Instead, Zimbabwe had to rely on other foreign currencies, including the South African rand, the U.S. dollar, and the euro. In 2019, a new currency was introduced, the RTGS dollar (ZWL), which caused the suspension of the multiple currency system. However, this was reinstated in 2020.
