Analysts Speak On Implications Of Zimbabwe Multicurrency Ban
Zimbabwe declared its interim currency to be the country’s sole legal tender on Monday in a bid to stem black market demand for foreign currencies.
The RTGS (Real Time Gross Settlement) dollar was introduced in February as a first step toward a new currency by year’s end, a key part of President Emmerson Mnangagwa‘s plan to stabilize an economy racked by inflation and widespread shortages.
“The British pound, United States dollar, South African rand Botswana pula and any other foreign currency whatsoever shall no longer be legal tender alongside the Zimbabwe dollar in any transactions in Zimbabwe,” a government notice published on Monday said.
Zimbabwe adopted the U.S. dollar as its official currency in 2009, when most Zimbabweans had already ditched the hyperinflation-wrecked Zimbabwe Dollar.
Zimbabwe abandoned the Zimbabwe dollar after inflation reached an estimated 500 billion percent in 2008, according to the International Monetary Fund. While the country has since used a basket of currencies from the continent and abroad as well as bond notes and the RTGS$, some government departments and agencies have until recently demanded payment in the greenback.
The central bank made it clear in its announcement that money held in foreign-currency accounts will not be affected, but the step will be greeted with alarm and memories of the lives wrecked and pensions and savings lost in 2008. Recollections of what effectively became a barter economy in a country where a suitcase full of bank notes was needed to purchase a pair of jeans will be hard to erase.
“Any attempt by the officials to bring a new currency would require confidence,” said Jee-A van der Linde, an economist at NKC African Economics in Paarl, South Africa. “People aren’t sure that there’s something backing the currency. There’s no way that something like this will be maintained. People will not trust the currency. It will promote more off-market activity even more if that’s possible.”
Zimbabwe’s official currency trades at a discount on the street. In February the central bank introduced the RTGS$ and said it and bond notes would no longer be pegged to the US currency. This precipitated a rapid depreciation in both the newly introduced interbank rate and the black-market value. Inflation, at 97.9%, is now at its highest since at least 2008.
This “will worsen the situation,” said Christopher Mugaga, the chief executive officer of the Zimbabwe National Chamber of Commerce. Companies “with real dollars will simply go underground,” he said.
However the latest iteration of the domestic currency, the RTGS, has struggled to gain trust among large firms and ordinary Zimbabweans. Economic analysts fear 2009 may be repeating itself with the interim currency.
“They (government) are hoping that this will force generators of forex to sell their forex to make domestic transactions and thus create liquidity in the interbank market,” said a bank executive in capital Harare who declined to be named.
“It might work if they can support the market with a large injection of liquidity to complement this. If they can’t, well then people will just hold onto their forex even more tightly than before,” the banker said.
Last week the International Monetary Fund said the central bank should quickly allow the RTGS to float freely so that exporters could sell dollars at the interbank rate rather than surrender them to the central bank
On the official interbank rate, the RTGS currency was pegged at 6.2 but on Monday it was trading between 11 and 12 against the dollar on the unofficial market.
Many Zimbabweans complain that goods and services are still priced in other currencies. While more than 80% of Zimbabweans earn RTGS dollars, goods ranging from bricks to rentals, car parts and many groceries have their prices pegged in U.S. dollars.
Inflation has climbed to a decade high 97.86 per cent, eroding salaries and savings and causing Zimbabweans to fear a return to the hyperinflation of 2008 when the rate reached 500 billion percent. — Fin24/Reuters