The East African
For Zimbabwe President Emmerson Mnangagwa, the re-introduction of the country’s currency after a decade of US dollar dominance marks a return to normalcy.
To many others, however, it heralded uncertainty; explaining the resistance to the surrogate currency from consumers, traders and experts alike.
That experiment now appears to be paying off, holding out hope that Zimbabwe’s decade old search for market stability could be in the offing.
On June 24, Zimbabwe made its surrogate currencies – the RTGS dollar and bond notes – the sole legal tender to end the Rand-Greenback multicurrency system adopted in 2009 in a bid to halt hyperinflation.
On June 26, opposition leader Joseph Busha filed an application in the High Court seeking to bar the return of the Zimbabwe dollar.
His main ground is that the ban on other currencies was made through an executive order by President Mnangagwa without the backing of a parliamentary process.
A human rights lawyer Godfrey Mupanga has also filed a parallel case seeking a decision that the ban on use of other currencies is illegal.
Labour unions and opposition parties have threatened to roll out mass protests if the introduction of a local currency is not reversed.
A decade later, President Mnangagwa’s government is trying to roll back dollarisation to reboot an economy that is stagnating amid resurgent increase in prices following a prolonged drought.
His backers say dollarisation was suffocating Zimbabwe’s fragile economy and exchange rates appear to vindicate their view.
“We were strangling our most productive and competitive industries and we would have been left with nothing,” said Eddie Cross, an economist and a former legislator.
Soon after his appointment in September last year, Professor Ncube intention to scrap the bond notes was resisted from within the ruling party.
He delinked the RTGS dollar and bond notes from the US dollar while curiously keeping them at par with the greenback.
In February, the government introduced the RTGS dollar as a currency and liberalised the foreign currency market with the setting up of an interbank forex market.
The Reserve Bank of Zimbabwe (RBZ) instructed banks to trade 2.5 RTGS units to the dollar, which was way stronger than the four units prevailing in the parallel market.
This created an opportunity for margin trading in the currency – arbitrage – by speculators, pushing the parallel market rate to 14 units to the dollar.
Prices skyrocketed in a country that now imports most of its products, putting the government under pressure to review the salaries of its workers.
“It (multicurrency system) had to stop. Inflation would have accelerated to levels where it would have made life simply impossible for the average person,” Cross said.
His view is backed by exchange rates which have improved by half in the parallel market in favour of the RTGS dollar and bond notes since the ban.
Prof Ncube expects the currency to stabilise at better levels, allaying widespread fears that the government could upset the apple cart by going on a money printing spree.
“In 2008, we had fiscal indiscipline. We’re in a far better position than then. Our policies and conditions are different,” the minister told Parliament.
RBZ governor John Mangudya told MPs that only the equivalent of $400 million in local currency would be printed to close the gap created by the banning of the greenback.
“There is need for increase in paper money to replace the gap created by non-usage of foreign currency. The ZW$400 million will be on a drip-feed basis,” he said.
Analysts see this as confirmation that the government would be active in the market to stabilise the currency.
The latest currency reforms being spearheaded by Finance minister Mthuli Ncube, a Cambridge trained economics professor, have left Zimbabweans anxious over the future.
Some businesses, unsure of the implications of the new measures, increased prices three fold while others removed products from the shelves.
Ordinary people feared the return of hyperinflation and some Zimbabweans have taken the government to court in an effort to reverse the change in monetary policy.
“They are trying to force us to use a currency that we rejected years ago,” said Morgen Dube (67) a retiree who runs a taxi in Bulawayo to supplement his $60 monthly government pension.
He lost his top-up pension invested with a private insurer soon after retiring from his job as a train driver.
“The return of the Zimdollar means we are going back to that period where prices were going up every hour,” Dube said.
That fear lingers in the commodities market.
John Maketo, an informal trader in the capital Harare is still charging for his wares in US dollars.
“If I accept the Zimdollar I would not be able to restock because it is losing value every day,” Maketo said. “I buy my stock from South Africa and I need foreign currency to replenish.”
The surprise announcement of the change by the government was heavily criticised by the opposition and economists.
“We note with great concern the decision by the central bank to reintroduce the Zimbabwe dollar without returning to economic fundamentals,” the Crisis in Zimbabwe Coalition (CiZC) said.
“The motivations to reintroduce the Zimbabwe dollar stems from hyperinflation fears and the exchange rate collapse. A return of the Zimbabwe dollar that is not backed by a stable economy will further drain the little confidence that might still exist in the financial services sector,” said the crisis in Zimbabwe coalition.
Hyperinflation was characterised by the collapse of banks and insurance companies a decade ago.
At the heart of Zimbabwe’s economic problems is divestment, collapse of infrastructure, poor revenue inflows, and a ballooning domestic debt.
A stable currency could provide a shot in the arm in addressing these problems.