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Depreciation of the Zimbabwe dollar leads to higher food prices

Depreciation of the Zimbabwe dollar leads to higher food prices

The United States Agency for International Development (USAID) reports that the local currency, the Zimbabwe dollar, depreciated by 6% and 9% against the US dollar in October on the official and parallel foreign exchange markets respectively. The devaluation has led to an increase in food prices, with the Zimbabwe Consumer Council (ZCC) reporting that the price of the local currency basket used by low-income households in six-person towns rose by 6.24 percent to almost Z$2.7 million per month.

The devaluation of the Zimbabwe dollar has also led to the informal market refusing to accept the Z$50 bill, the second most circulated Zimbabwe dollar. Only formal retail chains accept these bills. In addition, the cost of using mobile and electronic means for Zimbabwe dollar transactions continues to increase.

Depreciation of the Zimbabwe dollar leads to higher food prices

The depreciation of the Zimbabwean dollar has led to an increase in the Zimbabwean dollar price of basic foodstuffs and other commodities.In October, the Zimbabwean dollar price of wheat and bread increased by 25%, the Zimbabwean dollar price of maize meal and rice by 20% and 15%, respectively, and the Zimbabwean dollar price of sugar and cooking oil by almost 5%.

However, most households are increasingly using the United States dollar or the South African rand, especially in the informal sector, where the industry largely does not use local currency. It is estimated that more than 80% of transactions are conducted in US dollars.

In addition, poor households, and even some middle- and wealthy households, increasingly rely on retailers and open markets in the informal sector, where goods are cheaper and almost exclusively denominated in dollars. These retailers and open markets pay for goods in cash in dollars, and they supply goods in preference to producers to formal wholesalers and supermarket chains, which operate mainly in Zim dollars and usually pay producers several weeks after the Zim dollar may have depreciated.

Last month, it became clear that most formal retail supermarkets had begun paying for goods in dollars, using the prevailing interbank lending rate, which allows for a premium of up to 10 percent, when paying for goods in zim dollars.

This, coupled with the fact that banks have virtually stopped lending in foreign currencies, prompted Zimbabwean President Emmerson Mnangagwa to extend the use of the dollar to 2030 from an initial 2025.

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