What is driving firms to demand US dollars for payments in Zimbabwe?

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Firms are demanding US dollars for payments in Zimbabwe to hedge against the steep depreciation of the interim RTGS dollar and runaway inflation.

Local businesses in Zimbabwe are increasingly insisting on payments in US dollars as a protective measure against the significant devaluation of the country's interim currency, the RTGS dollar, and the highest inflation rates seen in a decade. This trend reflects a growing lack of confidence in the RTGS dollar, leading to a de facto re-dollarisation of the economy where prices are increasingly set in the more stable US currency.
The RTGS Dollar Has Suffered a Major Decline

Since its introduction in February, Zimbabwe's interim RTGS dollar has experienced a substantial fall in value. By June, it had plunged by 60 per cent against the US dollar. This depreciation has been evident on both the black market, where it traded at 10.5 to the US dollar, and the official interbank rate, which stood at 6.2. This rapid decline erodes the purchasing power of earnings made in RTGS dollars.
Inflation Has Reached a Decade High

Zimbabwe is currently grappling with inflation at its highest level in ten years, reaching 97.86 per cent in May. This hyperinflationary environment significantly diminishes the value of savings and salaries, creating an urgent need for individuals and businesses to seek a more stable store of value. The fear of a return to the hyperinflationary conditions of 2008, which devastated the economy, is palpable among the populace.
A Dichotomy in Earnings and Pricing

A significant portion of the Zimbabwean population, over 80 per cent, earns their income in RTGS dollars. However, the pricing of goods and services across various sectors, from basic commodities like bread to more significant expenses such as rentals and car parts, is increasingly being pegged in US dollars. This creates a severe affordability crisis for ordinary citizens, as their RTGS dollar earnings are insufficient to meet the US dollar-denominated prices.
Economic Instability Fuels Demand for US Dollars

The combination of a depreciating interim currency and soaring inflation has created an environment of economic instability. Businesses are opting for US dollar payments to safeguard their revenue and maintain profitability against the volatile local currency. This situation mirrors historical patterns, with analysts noting similarities to the period leading up to 2009, when Zimbabwe formally adopted the US dollar after its own currency collapsed under hyperinflation.

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What is driving firms to demand US dollars for payments in Zimbabwe?

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