Zimbabwe dollar continued depreciating this week as its demand remained underwhelming. The official exchange rate of ZWL to US dollar is 944. But it is increasingly becoming difficult to get the official rate. Instead, the parallel rate has jumped to as high as 1,600. This means that the second coming of the Zimbabwe dollar is ending.
US dollar demand rising
Zimbabwe, a resource-rich country, is going through challenges because of its currency issues. Unlike many countries, many people in Zimbabwe don’t believe in the local currency. Instead, it has become common for many companies to charge sell their products in US dollars.
As a result, the proportion of Zimbabweans using the ZIM dollar has crashed from ~100% in 2019 to just 30% this year. Instead, most people and companies are using USD, which they believe to be more reliable and steady.
The government has also embraced more US dollar usage. For example, some government agencies like immigration require users to pay in US dollars. Zimbabwe’s statistics agency has also adopted new measures to incorporate US dollar in its calculations. For example, it now calculates inflation using both the USD and ZWL.
Zimbabwe exports rising
Most Zimbabwe exporters also prefer to deal with the US dollar. This is important because Zimbabwe is one of the richest African countries in terms of resources. It is a major player in platinum group metals like platinum, palladium, and rhodium. These resources have become important as foreign buyers attempt to decouple from their dependence on Russia.
Zimbabwe is also a leading player in the ongoing energy transition. It has vast lithium resources. However, the government’s policies mean that the country is not yet benefiting from these resources. As I wrote last week, lithium prices have dropped while Zimbabwe’s government has banned exports of raw lithium ore. Its goal is to ensure that this lithium is refined in the country.
Meanwhile, Zimbabwe is expected to benefit from its cotton exports. The country is expecting a record cotton season, with the production set to more than double to 100k tons. However, cotton prices have slumped by over 50% from the highest point in 2022.
Zimbabwe will benefit from the rising gold prices. Gold jumped to a high of $2,000 in March and demand is expected to remain high.
The future of Zimbabwe dollar is bleak because of the dollarization of the economy. Most people who lost their savings during the hyperinflation phase will likely avoid the ZWL in the future.
Source : https://invezz.com/news/2023/04/06/heres-why-the-zimbabwe-dollar-zwd-faces-an-uncertain-future/
