ZIMBABWE remains stuck in the shackles of “dollarisation”
despite the government’s move to end the multicurrency system after a decade.
On June 24, through SI 142 of 2019 also known as Reserve
Bank of Zimbabwe (Legal Tender) Regulations, government “abolished” the use of
multiple currencies such as the British pound, United States dollar, South
African rand, and Botswana pula, among others.
As a result, the Zimbabwean dollar in the form of real time
gross settlement (RTGS), bond notes and coins, became—on paper — the only legal
tender, nearly a decade after it was decimated by hyperinflation and
demonitised.
The policy sought, among other things, to contain the
thriving black market, curb runaway inflation and enhance the affordability of
goods and services by the majority.
But reality on the ground shows that the country is still
under dollarisation as businesses and individuals are still using greenback for
domestic transactions.
In addition, if not using the United States dollars (US$)
for transactions, businesses are referencing or indexing their prices to the
greenback.
The central bank recently granted special dispensation to
employees of exporting companies to receive their salaries in foreign currency.
It also allowed fuel dealers and other sectors to sell
their products in foreign currency.
On the other hand, civil servants including teachers and
doctors are demanding US$ rated salaries.
Economic analyst Persistence Gwanyanya said the informal
sector had totally ignored SI 142 and continues to transact locally in foreign
currency.
“Even those who complied are largely referencing or
indexing their prices to the United States dollar, all of which deny the
country the opportunity to benefit from using a sovereign currency,” he said.
“A normal economy should reference its prices to itself.
“In this economy, prices are a function of its demand and
supply factors, not just US dollar exchange rate movements.
“This is what makes such an economy produce and sell its
products cheaper, both locally and internationally, which is the main argument
advanced in favour of a sovereign currency,” he said.
“Our regional peers like South Africa, Zambia and Botswana
are currently enjoying the highlighted benefits of using their sovereign
currencies and that is where we want our country to go.”
Gwanyanya said beneficiaries of free funds prefer to hold
their money in foreign currency to hedge against RTGS$ depreciation.
“They normally convert only the amounts they need to use at
a time and in some cases prefer to buy in US dollars and enjoy the discounts
offered,” he added.
“It is always important to understand that every US dollar
discount implies RTGS$ depreciation and therefore higher RTGS$ prices, with the
concomitant effect of speeding redollarisation.”
Another economic analyst, John Robertson said street
traders never de-dollarised.
“The local paper money is as scarce as the foreign
exchange, so a separate premium has to be paid for cash.
“The official exchange rate for the electronic money might
be about 15,5:1, but very little is available at that exchange rate. The street
traders and others can get 19:1 or 20:1,” he said.
“For them (street traders), the country never de-dollarised
and they have retained the ability to hold onto reserves that should be held by
the Reserve Bank and all traded at a single daily rate.
“If that were to be enforced, some privileges would
disappear, so the market remains distorted and highly unstable because the
privileges are considered so important.”
A survey conducted by Standardbusiness last week in Harare and
Bulawayo revealed that most businesses, both formal and informal, were still
accepting US$ or indexing their prices to the greenback.
In some of his writings, business and economic analyst
Victor Bhoroma indicated that the persistent price volatility in the economy
had left producers and retailers in the country with very limited options apart
from indexing their products in the US dollar or pegging their RTGS prices
using the black market rates of the day.
To some extent, he said this was inevitable after the
economy rolled back to the hyperinflation era at the beginning of the year,
with inflation figures standing at 176% at the end of June 2019.
Treasury, however, suspended the publication of annualised
inflation figures until February 2020 to allow the Zimbabwe Statistics Agency
to compile new price data after the country adopted the mono-currency system.
The local currency has lost more than 93,5% of its value
since introduction on February 20 2019.
Prices for goods and services are, however, informed by the
parallel market rates where US$1 fetches about $19,5.
Bhoroma pointed out that Zimbabwe was now in de facto
dollarisation, also known as unofficial dollarisation, which arises when
individuals lose confidence in a domestic currency and hold foreign currency
bank deposits or notes to protect against high inflation in that domestic
currency.
De facto dollarisation includes the spontaneous adoption of
the dollar by producers and retailers as a means to trade or store value
without government legislation or recognition, he said.
“De facto dollarisation is helping local producers to get
fair value for their products, keeping them in business.
“Local producers learnt well from their painful experiences
in 2008 and have remained alert to the black market exchange rate.
“It can only be rational given the prevailing economic
uncertainty in Zimbabwe.”
Robertson said for any country, if its local currency is
trusted, is readily available and has a steady exchange rate, the population
will fully accept it.
“The country’s Reserve Bank is there to bank the foreign
reserves. If the Reserve Bank holds a good stock of foreign reserves, it will
have no difficulty meeting the legitimate needs of importers, holiday makers
and any others who need to make payments abroad,” he added.
Robertson said in Zimbabwe, none of these conditions apply
as the country does not have enough foreign currency income because “we closed
down our biggest export industry, commercial agriculture, and because we are
spending a high percentage of what is left of our export revenues on importing
food.”
“The local currency is not properly supported by
production, so its value cannot be trusted,” he said.
“Most of this money came into existence in the form of
electronic money a few years after we dollarised in 2009, but most of us did
not become consciously aware of it until a US dollar scarcity began to emerge
in the early months of 2015.”
Robertson said the central bank has destroyed trust and
nothing had been done to rebuild it.
“We might see trust gradually returning if the ZWL$15,5:1
rate is held constant for the coming months, but the momentum that has been
built into the inflation rate will take a full year to dissipate even if the
exchange rate does remain constant,” he said.
As a way forward, Robertson believes new bank notes to ease
the cash shortage will help, but only if government is extremely disciplined
and does not use any of this money to meet government expenses, unless it
reaches them as tax payments.
“Discipline in government is the first essential to help
the local currency become worthy of trust, and the second essential is to
sustain a stable exchange rate,” he said. Standard
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