• Weekly Decline: Traded at ZWG13.9521 down from ZWG13.8910
• Cash Rate: Traders adopting a parallel cash rate of ZWG20 per US dollar, diverging from the official rate of around 13
• Market Disparity: Parallel market rate plummets to 25 ZiG per US dollar, while the interbank rate remains relatively stable with a modest 2% depreciation

Harare- The Zimbabwe Gold (ZiG) experienced a notable decline on September 13, 2024, trading closer to ZWG14 per US dollar, marking one of its worst performances to date.

This follows a weekly loss, with the currency trading at ZWG13.9521 against the US dollar, down from ZWG13.8910 the previous week.

Notwithstanding the currency's struggles to break through the 14 barrier, various traders, particularly those in public intercity transport and informal shops, have adopted a parallel exchange rate of 20 ZiG per US dollar when dealing in cash transactions. This diverges significantly from the official rate of around 13, as stipulated by the Reserve Bank of Zimbabwe.

The widespread use of this unofficial rate underscores the disconnect between the formal and informal economies, with many businesses and individuals opting for the more favorable, albeit unofficial, exchange rates.

The currency began the week of September on a lower note, trading at ZWG13.8603, compared to ZWG13.8546 on August 30, 2024.

In contrast to the marginal declines observed on the formal market, the parallel market tells a different story. The exchange rate has plummeted to 25 ZiG per US dollar, resulting in a 75% premium.

While the interbank or formal exchange rate has remained relatively stable since its introduction, depreciating by a modest 2% against the US dollar between April and September, the parallel market rate has depreciated significantly by 43% over the same period.

The interbank exchange rate is tied to global gold prices, whereas the parallel rate is driven by market forces of demand and supply. Therefore, the rapid depreciation of the ZiG on the parallel market reflects an increased supply of ZiG, increased demand for USD, or a combination of both.

However, despite the currency mix favoring the US dollar (78.5%) over the ZiG (21.5%), the ZiG continues to plummet.

This can be attributed to currency functionality, as the ZiG's effectiveness as a medium of exchange and store of value is limited to the formal sector.

In practice, Zimbabwean employees have limited options for using their local currency portion, primarily restricted to purchasing groceries in formal supermarkets.

Any other transactions require converting the remaining local currency into foreign currency.

Consequently, while the 21.5% share of ZiG in the economy may appear low, it is disproportionately high compared to the income portion spent in the formal market.