Confusion marks Zimbabwe's return to own currency

Wednesday June 26 2019

Zimbabwe Reserve Bank Governor John Mangudya delivers his Monetory Policy Statement in Harare on February 20, 2019, where he announced the establishment of an interbank foreign exchange market in the country officially abandoning the 1:1 exchange rate between the USD and the country's quasi currency the Bond note. Confusion reigned in markets in Zimbabwe on Wednesday after the Reserve Bank abandoned the use of foreign currency in favour of two local instruments. PHOTO | FILE | NATION MEDIA GROUP.


Businesses stayed shut and banks limited withdrawals as Zimbabwe's entered a transitional period of trading in a notional currency after the central bank stopped transactions in foreign money.

The move by President Emmerson Mnangagwa's government aims to stabilise the markets in the face of inflation that has hit 100 per cent, the highest level since the hyper-inflation days a decade ago.

On the face of it, having the electronic RTGS dollar and bond notes as Harare's interim legal tender should end the ten-year dominance of the US dollar and the South African rand in the economy.

However, initial outcomes suggest that the two currencies could actually thrive more in the black market hitting confidence in the local instruments that now represent a Zimbabwe dollar yet to be printed.

“I was told that I cannot withdraw money from my personal foreign currency account until the RBZ clarifies certain issues. That means I cannot buy my medication,” said a Harare businessman Peter Muchengeti.

Nomuzi Moyo, a 21-year-old cashier at a leading supermarket in Victoria Falls, said they had been ordered to stop accepting US dollars.
"We still don't understand where all this is going, and as for the prices there has not been any communication," she said.


This was despite the Reserve Bank of Zimbabwe clarifying that the restrictions only on the foreign currency accounts of corporations and non-government organisations.
"Cash withdrawals by individuals are still permissible and the policy position hasn’t changed,” the central bank said in a tweet on Wednesday, blaming social media for the confusion.

The central bank had cancelled a media briefing it had scheduled for Wednesday evening.

Last week, President Mnangagwa said a new currency would only be introduced in nine months’ time.

The abrupt nature of the reforms and Zimbabwe's history of flip-flopping on the national currency issue also underlined scepticism of the new measure.

This time, the government said it hoped to kill a growing parallel market in foreign currency and reset the economy, in the face of the RTGS and bond notes collapse.

The currency crisis had created three tiers of pricing - in US dollar cash, and two far higher prices for paying in bond notes or electronic RTGS.

The country’s main opposition party, the MDC led by Nelson Chamisa and labour unions have threatened strikes if the government does not overturn the new policy.
They argue that conditions are not yet ripe for Zimbabwe to introduce its own currency because of the poor performance of the economy.
“At present Zimbabwe cannot afford a paper currency, which has no economic value,” the MDC said.
They favour adoption of the South Africa Rand backed by the country officially joining the Rand Monetary Area - in which the currencies of Lesotho, eSwatini and South Africa are freely exchangeable at par.

Botswana had been a member of the arrangement but pulled out in 1975.
The MDC also called for national dialogue between Zanu PF, MDC, civil society, labour, business and churches in order to arrest the economic meltdown.

The opposition also claims the government is in a rush to introduce the Zimbabwe dollar in order to pay public servants and the army.

Zimbabwe introduced the RTGS in February and by Monday it was trading 12 units to the dollar.

The US dollar was adopted as legal tender in 2009 after hyper-inflation made the Zimbabwe dollar worthless, forcing its withdrawal.

In 2016, the government introduced bond notes to address the shortage of physical US dollars but they, too, subsequently lost tradeable value.

President Mnangagwa, who replaced long-time ruler Robert Mugabe following a military coup in 2017, has struggled to lift the Zimbabwe’s economy in the face of low foreign investment and a severe drought.