SI 142: The Zimbabwean Dollar’s Enforcer


By Neo Sithole

It has been a little over two weeks since the Zimbabwean Minister of Finance and Economic Development had announced that only the Zimbabwe dollar, previously known as the Real Time Gross Settlement dollar that had been introduced early this year, is to be the sole currency to be used in the country. In understanding the move made by the Zimbabwean government it is worthwhile looking at the rationale behind enforcing the use of the collapsed national currency. 

A brief history:

It’s been close to a decade since the Zimbabwean government has allowed a multi-currency system in 2009 including foreign currencies like the US Dollar which until now has been its anchor currency, the Rand, Botswana Pula, and Chinese Yuan after hyper-inflation caused original ‘Zim-Dollar’ to plummet in value becoming virtually worthless. However, the currency shortage of the US dollar quickly ensued as Zimbabwe fast ran out of US dollars for both local and external transactions. Banks all over the country were unable to provide citizens with US dollars and in desperate need of the staple currency, people turned to the Black market for US dollars and other foreign currencies. 

In a bid to ease the currency shortage and avert the illicit funds the Black market had been generating with Zimbabwean central Bank introduced Bond Notes with a 1:1 value to the US dollar in October 2016. Bond notes were not a legal currency but more a financial instrument used to fill the US Dollar shortage. Almost immediately the market rejected the surrogate currency sending it down a similar path as the Zim-Dollar in value loss-making it trade at a huge discount compared to the US dollar. People were still cash-strapped in terms of actual currency available in the public market, banks also had a limit to the amount of cash an individual was able to withdraw weekly. 

In February of this year the Reserve Bank of Zimbabwe most likely admitting it would be disastrous to continue the use of bond notes introduced  the Real Time Gross Settlement Dollar (RTGS) as the first step towards a new currency by President Emmerson Mnangagwa’s plan to stabilise an economy racked by inflation and widespread shortages as well as a renewed attempt in stemming black market demand for foreign by the end of the year.  

The New Policy:

The overarching policy holding guiding the reintroduction of the  Zimbabwe dollar as Zimbabwe’s only legal tender is the Statutory Instrument  142, while short, it is filled with all the metaphorical stopping power needed to cement the use of the Zimbabwe dollar in Zimbabwe, can be summarised into three points; 

  • Any transaction done in Zimbabwe must be done in the Zimbabwe dollar 
  • All foreign currencies can no longer be used for ALMOST all local transactions 
  • Existing Nostro FCA accounts remain as they were, operating as normal EXCEPT for paying local companies. 

In the three principles holding up SI 142, the first has the most meaning for anyone in Zimbabwe. The second and third essentially allow for bank accounts containing foreign currencies to remain the same unless paying local companies or needing to interact with the local market.

 
What this means for Zimbabwe:

Reality is that SI 142’s impact is in no way one dimensional, and at the time being the immediate effect is rather dizzying. A simple benefit is that unlike before people no longer need to enquire about pricing in various currencies or currency combinations. While unified pricing does not mean affordability, it does make it much easier for outlets like supermarkets and retail stores to price their items. Where it does become less general increasingly shaky is looking at how to fix prices with a crawling currency that is very much open to the volatility of the exchange rate. For those renting via a fixed amount in a foreign currency like the previously used US dollar, would the price of the rental increase/decrease be dependent on the international pull power of the Zim-dollar? Same could be said for school fees, insurances premiums, etc. 

Not to mention that the implementation of the new currency has in no way solved the cash issue as there still a limit placed on the amount banks can give their customers in cash. 

A more serious concern seen with the resurrected Zim-dollar is the same as the RTGS dollar, frankly, being the lack of confidence in the currency by Zimbabwean nationals. While legally all entities within Zimbabwe are forced to use the new Zimbabwe dollar as legal tender several goods and services still have their prices pegged in US dollars. This issue worsens in the more informal markets that are a lot harder to regulate. Inadvertently the limitations of the government to enforce widespread use of Zimbabwean dollar coupled with banks now only providing Zimbabwean dollars the black market is still used so that people have access to US dollars to use for the good and services that are still being offered in only US dollars. 

Several industries and business are affected, with some losing vital amounts of patronage while trying to operate with the new Zim-dollar as legal tender while those continuing to use US dollars are unable to interact with customers who have no US dollars. An interesting industry affected by SI 142 is Zimbabwe’s tourism sector. While tourists will be able to make payments for more formal transactions like hotel booking and flights in whatever currency using a Visa or Mastercard they will most likely have a difficult time interacting with the less formal markets that only transact in cash. 

Ultimately, the stability, reliability and availability of completive national currency are vital for any country more so for Zimbabwe in attempting to combat growing illicit cash flows through the black market, develop a market that trades in an easily regulated currency with regulated prices and rebuilt a crashed economy. Still, the lack of effective communication by the Zimbabwean government and its citizens, finance institutions and stakeholder in the implementation of the Zimbabwean dollar along with plans for cash generation and the regulation of the enforcement of the new currency is a massive detriment to its immediate success. 

How the Zimbabwean government handles the introduction of the Zimbabwean dollar as well as enforces its use and regulates the phasing out of foreign currencies still being defiantly used, how the banks fill the gaps in how much cash is given per person and mainly how Zimbabweans interact with the currency in the next few months may be determining factors on how effective it will be. 

While arguments over how it may have been done the Zimbabwean government has jammed open a window of opportunity that cannot be missed. 

-JP

Article Tags

RTGS Dollar

Zimababwe

Economy

Hyperinflation

US Dollar

Rand

Pula

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