- ZWL dips by -24% in 2023
- ZSE up 50% in 2023
- Hedge-seeking induces exchange rate loss
Harare – The Zimdollar has suffered an unparalleled decline since its reintroduction in 2019. It shed off 75% in 2019 and 2020 apiece before easing by a mild 28% in 2021. However, in 2022 the unit declined by its worst margin since its second coming, at 85%. The pace of decline has since increased into 2023, and so far the unit has lost 24% from its year opening levels.
Typically, living in a country with rampant inflation requires one to keep less of highly liquid assets which are valued in the local currency. However, the decision on which asset class to consider as a safe haven is often not a common one, which leaves most people preferring to hoard the available hard currency, which is the US$ in Zimbabwe, and this subsequently fuels more inflation as high demand for the greenback means low demand for the ZWL being disposed of. Understanding the rate of exchange rate loss and the rate of value appreciation of other asset classes can be a smart move to make one’s life easy as they do not have to worry about chasing the hard currency on the parallel market as everyone else.
Since the beginning of 2023, the ZWL has depreciated by -17% against the greenback on the parallel exchange market, -25% on the Reuters Auction market and -24% on the Willing-Buyer Willing-Seller market commonly referred to as the Interbank market. However, since the interbank exchange rate is the sole legal exchange rate in the country, it is important to peg the value of any ZWL based asset class on the interbank exchange rate movement, while it is also rational to consider the parallel market exchange rate movement since it is often more realistic and convenient as it relies on free market variables.
In other words, to sustain real value which is rather expressed in ZWL, an asset class valued at ZWL684.33 at the end of December 2022, should now be valued at ZWL809.43. Any negative deviation from the latter is a loss on valuation while any positive deviation reflects an appreciation in value. While most people have shun the country’s regulated asset classes owing to eroded confidence in the government, which has seen some capital markets losing relevance in the country, the stock markets have rather stood the test of time as most ZWL holders have resorted to hoarding stocks.
In perspective, if you are a shop owner who priced a loaf of bread at ZWL684.33 on the first of January this year, in a bid to outpace real value loss you need to have adjusted your prices upwards by at least 31% to ZWL809.43 for a loaf of bread. Comparatively, an investor who placed his liquidity on the ZSE on the first of January 2022 would currently boast of a 50% appreciation in ZWL terms, which is upwards of 31%. This means for someone who opted to invest on ZSE, they would have beaten exchange rate loss by a margin of at least 10% while someone who opted to hoard US$’s to store value would have only safely guarded his value against inflation with no margin of appreciation.
The downside of the latter is it overtime results in a continued depreciation of the local currency as more people demand the greenback while disposing of the ZWL while the former results in increased attractiveness of the stock market which in-turn leads to more liquidity and capital for the listed companies. In conclusion, the exploration of other forms of value preservation in the face of rampant inflation in-turn serves as a profiteering scheme while simultaneously slowing down the inflation.
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