Cost of Hard Currency in Zimbabwe Tumbles as Optimism Takes Root

HARARE (Capital Markets in Africa) – The street price of hard currency in Zimbabwe has dropped more than 30 percent since Robert Mugabe was ousted as president last week.

One U.S. dollar cost the equivalent of $1.30 in Zimbabwean bond notes on the black market on Tuesday, down from $1.90 on November 20, according to street traders who quoted prices to Bloomberg. 

Zimbabwe doesn’t have its own currency, with the government adopting a basket of foreign currencies including the U.S. dollar and South African rand as legal tender in 2009 after hyperinflation rendered the local dollar worthless. A bond note is an instrument issued by the central bank that is, in theory, pegged one-to-one to the dollar.

“The markets had overpriced as investors and other market players had been hedging themselves against a possible hyper-inflationary outlook,” said Welcome Mavingire, Managing Partner at Intellego Investments Consultants in Harare. “Now that there is optimism about the economic outlook emanating from the new political dispensation, those fears of hyperinflation have dissipated, hence naturally the markets had to self-correct.”

Cash Shortage
Emmerson Mnangagwa took office as Zimbabwe’s new president with a pledge to revive the economically distressed southern African nation. Mnangagwa, who replaced Mugabe after he resigned on Nov. 21 to end 37 years in power, is facing challenges including a 90 percent jobless rate, a severe cash shortage and crumbling public infrastructure.

Before the change of power, Zimbabweans had piled into assets including real estate, hard currency and U.S. dollar-denominated stocks as a store of value, Mavingire said.

“More confidence also entails less people willing to hold foreign currency and other real assets as a hedge and others who were holding on releasing them back in the market, hence the prices coming down,” he said. “Foreign-currency rates are already tumbling on the unofficial markets with premiums of around 30 percent being quoted for transfers, down from about 80 percent a week ago.”

Mnangagwa has urged western nations that have imposed sanctions on Zimbabwe to reconsider their measures and said his government was committed to compensating farmers whose land was taken under a Mugabe-backed expropriation program.

Source: Bloomberg Business News