A year after reintroducing its own currency, Zimbabwe is edging closer to dollarisation for the second time in just over a decade.
On June 24, 2019, the country stopped a multicurrency system that saw the US dollar becoming the preferred currency.
Zimbabwe then began currency reforms meant to set the local dollar on a firm footing, but economists say the experiment has failed and a return to the US dollar is now inevitable.
This past week, the central bank restarted the interbank foreign currency market that was suspended in March.
An auction system for foreign currency was opened to allow market forces to determine the exchange rate: The official exchange rate rose from the artificial $1:25 to $1:57 overnight.
The government also started partially settling civil servants’ wages in foreign currency to pacify unions that have been clamouring for a return to the US dollar due to the volatility of the local currency.
Retailers were asked to start displaying prices in both the US dollar and the Zimbabwean dollar as part of policy measures to stabilise the economy.
“These collective measures point towards increased re-dollarisation of the economy at least in part which, in turn, is a result of sustained depreciation of the Zimdollar,” said Respect Gwenzi, a financial analyst.
President Emmerson Mnangagwa on Wednesday blamed the economic woes on saboteurs and threatened that his government would come down hard on businesses that were allegedly manipulating the currency.
Businesses are already rejecting the local currency, preferring the US dollar because of its stability.
The Zimbabwe dollar has been losing value rapidly on the parallel market and by Wednesday $1 was fetching ZW$90.
This has put pressure on the government to pay its workers in foreign currency as health workers downed their tools a week ago despite a 50 per cent salary review.
“The rejection of the local currency and rising inflation is a vote of no confidence on government policies by the economy,” said Peter Mutasa, the Zimbabwe Congress of Trade Unions president. The union has threatened to roll out mass protests over the country’s deteriorating economic situation.
Christopher Mugaga, the Zimbabwe National Chamber of Commerce chief executive, said the move to pay part of the civil servants’ wages in foreign currency was ill-advised.
“They have actually created a crisis of expectations, which is disastrous,” Mr Mugaga said. “What will they do after three months? By so doing, they have also expedited the re-dollarisation of the economy.”
Former finance minister Tendai Biti said the measures set by the Reserve Bank of Zimbabwe to stop the collapse of the local dollar were futile as the economic environment did not allow for a stable currency.
“It’s shifting the deck when the Titanic is sinking,” said Mr Biti, who was the treasury chief when Zimbabwe transitioned into dollarisation in 2009 due to record hyper-inflation.
The former minister, who is now vice president of the country’s main opposition party MDC Alliance, was credited with helping stabilise the economy during his tenure.
Mr Biti said Zimbabwe’s economy has gone off the rails under President Mnangagwa’s leadership, and that the currency collapse was a symptom of bigger problems.
“These measures are actually making the parallel market rate go on fire,” he said, referring to the measures by the Reserve Bank of Zimbabwe to stabilise the local dollar.
“On May 15, the black market rate was $1 to ZW$40, today, in early June, the rate is $1 to ZW$85.
‘‘So it has grown by more than 100 per cent in less than three weeks,” Mr Biti added.
“Some of the things that have exacerbated this have been the measures taken by the Reserve Bank, in particular the restrictions on electronic transfers, mobile money and the restriction of real time gross settlement transactions.”
Mr Biti said ordinary people have lost confidence in the local currency.
“There is a problem of foreign currency here because the government has stopped using it,” he said. “You can’t force that currency again on people.”
John Robertson, a Harare-based economist, said the foreign currency auction system was likely to accelerate the collapse of the local currency.
“With the auction setting the rate, that rate will move from 25 to some other number that could move every week,” Mr Robertson said.