Until February 20th, Zimbabwe produced a quasi-currency. It was dubbed a “Zollar.” On the 20th, the quasi-currency became Zimbabwe’s official currency. This new currency is called RTGS dollars and consists of bond notes and RTGS (electronic money).

The RTGS dollars possess legal tender status and will serve as the unit of account for the government’s books. The official exchange rate for Zollar quasi-currency had been set at a one-to-one rate with the U.S. dollar. But now, the RTGS dollar will trade at a managed floating exchange rate. The rate today is 2.50 per U.S. dollar, not par, as it used to be. So, Zimbabwe’s official exchange rate has experienced a maxi-devaluation of 60%.

That, however, is not the end of Zimbabwe’s exchange-rate story. Zimbabwe imposes a plethora of exchange and capital controls on its citizens. Under these exchange controls, private individuals, traders, and companies must seek permission from the government to buy, sell, and hold foreign currencies. So, neither the old Zollar nor the new RTGS dollar is freely convertible into a foreign currency. In consequence, a black-market (read: free market) exists. Indeed, whenever there are exchange controls and restrictions on free convertibility, black markets always appear. At present, the black-market rate is 5.75, which represents a considerable premium over the official rate of 2.50 RTGS$/USD.

The black-market usually yields a premium over the official rate, as it does Zimbabwe. In some cases, the premiums can reach staggering levels. For example, in 1982, Ghana’s cedi carried a premium of over 2,000%. These premiums are known as black-market premiums.