By Jeph Ajobaju, Chief Copy Editor
Zimbabweans are in shock over the government’s sudden and daring step back 10 years to reintroduce the local currency in which they have little faith.
Harare has banned local trading in foreign currencies, including the United States dollar, and reintroduced the Zimbabwe dollar jettisoned because of hyperinflation in 2009.
At the time, the U.S. dollar and the South African rand were the main currencies adopted, and the exchange rate was Z$35 quadrillion to $1.
Zimbabweans will no longer be able to pay for goods and services in U.S. dollars or other foreign currencies after a government decree issued this week outlawed the use of foreign currencies in local transactions.
Why the law was introduced
According to the BBC, the economy is a mess. Nearly everything is imported and there is a shortage of physical cash. The cost of living is very expensive. Unemployment is widespread.
Various things have been tried to solve the problem, including the introduction in 2016 of bond notes, a parallel currency that was only accepted in Zimbabwe.
It was officially pegged to the U.S. dollar but in reality was worth much less – so a thriving black market developed and Zimbabwe has become a cashless society, relying on card-based transactions or trading with mobile money.
In February, bond notes and electronic cash were re-branded RTGS dollars and allowed to float to try and crush the black market.
However, workers, who used to get their salaries paid in U.S. dollars, have found that their salaries in RTGS dollars are not able to keep up with inflation – now running at 100 per cent.
People were often expected to pay for goods in shops and services, like doctors’ fees, in U.S. dollars.
President Emmerson Mnangagwa said the ban was an “important step in restoring normalcy to our economy”.
“While the multi-currency regime helped stabilise the economy, it did not give us control of monetary policy and left us at the mercy of U.S. dollar pricing which has been a root cause of inflation,” he added.
The authorities also say because the U.S. dollar is so strong, producing goods locally is expensive which is why businesses prefer to import goods.
Reactions
The laws has unleashed anger and exasperation.
Most people, who associate the Zimbabwe dollar with food shortages and runaway inflation, have complained about the lack of warning. The RTGS officially became the Zimbabwe dollar on June, the only legal tender.
“We should have our own currency. But they shouldn’t have abolished it as if they were swatting a fly. They should have given us notice,” one man told the BBC.
Supermarkets and those in the formal sector responded a day after the announcement by issuing new prices in Zimbabwean dollars – but they were beyond the means of many.
A first-time doctor’s consultation is now Z$1,800 – more than a teacher or nurse earns in a month.
Informal traders, who dominate the economy and need U.S. dollars for imports, have vowed to defy the directive.
“How is it possible that the U.S. dollar is no longer accepted? It won’t work. We actually want greater use of it, so that as street vendors we can have them. Scrap the bond note instead,” a street vendor in the capital, Harare, told the BBC.
Opposition Movement for Democratic Change (MDC) lawmaker, David Coltart, called the move “sheer madness”.
“The market has been re-dollarising because of lack of confidence in the RTGS dollar. You can’t force people to love a currency …. This will exacerbate the chaos,” he said on Twitter.
But local market analysts are not thrilled. Eddie Cross, an economist and former opposition MDC legislator, attacked the law.
“This is just stupidity reigning supreme. I think it’s a ridiculous measure,” Cross said.
“The exchange rate will run and this is completely out of sync. For heaven’s sake, this is economic sabotage. I hope people will not go on the street tomorrow. This is just catastrophic.”
John Robertson, an independent economist based in Harare, said: “I am not fully convinced it’s genuine. This idea is so bad it’s a cause for concern. I fear it may be an attempt in government to cause someone embarrassment. We hope it is revised. We are suspicious of this.”
Others said the move is an attempt to put the brakes on an unofficial redollarisation of the economy, as most businesses had begun charging prices for goods and services in U.S. dollars instead of RTGS dollar, the official currency since February.
Another economist, Victor Bhoroma, said the effect of the regulations are far reaching, and the new measures mean all debts contracted in U.S. dollar will now be honoured in Zimbabwe dollars.
Bhoroma believes the law aims to stop redollarisation led by business but it will be difficult to stop.
“Zimbabwe will still be in de-facto dollarisation as long as inflation levels for the Zimbabwean dollar are very high and in the absence of confidence in government institutions.”
Unions threaten strike
The trade unions have threatened “mass action” if the policy is not reversed.
The Zimbabwe Congress of Trade Unions (ZCTU) wants workers to be paid in U.S. dollars again.
In January, it led nationwide protests against a 150 per cent fuel price increase, triggering a violent crackdown by the army and police that rights groups say left at least 12 people dead.
On the streets of Harare, black market traders are still exchanging and accepting U.S. dollars.
The value on the black market has remained unchanged – one U.S. dollar is worth 11 Zimbabwe dollars, compared with the official rate of 6.2.
Ultimately Zimbabweans have proved good at adapting over the years to one economic crisis after another.
Preference for foreign currencies
Zimbabweans are scarred by the mismanagement of the economy by the government of then-President Robert Mugabe. The Central Bank was forced to print banknotes of ever higher values to keep up with surging inflation.
Annual inflation reached 231 million per cent in July 2008. Officials gave up reporting monthly statistics when it peaked at just under 80 billion per cent in mid-November 2008.
The prices of goods multiplied several times a day. Though it was illegal at the time, many people opted to keep U.S. dollars, which they bought on the black market.
Businesses began demanding foreign currency. Eventually authorities were forced to catch up, scrapping the Zimbabwe dollar and sanctioning the use of several currencies, including the Chinese yuan and Indian rupee.
You could purchase something with one currency, and get change in another currency.
But in reality Zimbabwe ran out of all these currencies because it was importing far more than exporting – and has become a cashless society.
Long term plan
The Zimbabwe dollar comprises bond notes, coins, electronic balances and the RTGS dollar. The RTGS dollar is now made at par with the Zimbabwe unit.
It is a return to Zimbabwe’s original sovereign currency after independence in 1980.
But the original Zimbabwe dollar was abandoned in 2009 after years of economic upheaval, currency devaluation and devastating hyperinflation. That led to the adoption of the U.S. dollar and other more stable currencies.
The new policy aligns with Finance Minister Mthuli Ncube’s long-term plan to create a new currency and address concerns that the business community has been quietly leading an unofficial process to dollarise the economy yet again.
The law does not ban payment of duty in foreign currency for importers of cars and other items classified as luxury.
However, economists insist Harare does not have absolute control of the situation, as the value of the currency will depend variables such as Central Bank reserves, interbank market fluidity, confidence in the economy, national debt, export and import parity, inflation, and general economic performance.
Zimbabwe is currently in recession, setting up the Zimbabwe dollar for failure yet again. Black market activities and runaway inflation will not be dampened by the new law, Bhoroma predicted.