GOVERNMENT’s failure to resolve a perennial currency crisis could push Zimbabwe back into dollarisation, analysts have warned.
In the past year, markets have been increasingly rejecting the free-falling local currency in favour of the United States dollar.
Dollarisation occurs when the US dollar is used in addition to, or instead of a domestic currency of another country – a policy that was in force for a decade from 2009, following the collapse of the local unit in 2008 under the weight of hyperinflation.
The country reverted to its own currency in 2019.
But since its return, the Zimbabwe dollar has depreciated by wide margins, triggering fears of the return to the 2008 inflation crisis.
Economic analysts yesterday said the Zimdollar depreciated to US$1:$230 this month, from US$1:$120 in January last year, a sign that it was fast losing value and the country might find itself redollarising.
The local currency has also been decimated on the foreign currency auction system, where it traded at US$1:$115,42 this week from US$1:$6,32 when the platform was introduced in June 2020, leading to the erosion of incomes amid skyrocketing prices.
Most workers are paid in Zimdollars, but have to look for foreign currency on the black market to buy goods and services and store value.
As schools open next week, there is uncertainty over teachers’ return to work after they threatened to down tools unless government agreed to pay them in the greenback.
On Monday, bank workers threatened a crippling job action as they also demanded to be paid in US dollars.
They demanded a US dollar-indexed salary of at least US$900. Mine workers have also demanded US dollar salaries.
Workers’ calls were backed by Florence Taruvinga, president of the Zimbabwe Congress of Trade Unions (ZCTU) who said wages should be based on the poverty datum line (PDL).
“In principle, we agreed at the Tripartite Negotiating Forum (TNF) that the minimum wage should be based on the levels of PDL,” Taruvinga said
“We also agreed that the principle of restoration of workers’ wages that prevailed in April 2018 should have been maintained. Then the PDL was US$500. However, when it cames to implementation of the recommendation, which was to promulgate a statutory instrument, the government decided to implement it as Zimdollars. This was a departure from the recommendations. Our standpoint is that this economy can afford paying workers in US dollars,” Taruvinga said.
President of the Zimbabwe Banks and Allied Workers Union Tawanda Mutemi said: “The banking sector workers want their salaries restored to the 2018 era where the least paid worker got an average of US$900.”
Such has been the depreciation of the Zimdollar that government last year announced it would pay bonuses in hard currency to protect them from “exchange rate fluctuations”.
The reversion to the greenback was among the hottest topics during the CEO Africa Roundtable meeting last week when top banker Nigel Chanakira asked captains of industry whether they were ready to use the local unit.
At the meeting attended by Reserve Bank of Zimbabwe governor John Mangudya and Industry minister Sekai Nzenza, prominent economist Tony Hawkins did not hold back his views on the local currency.
“In 2018/19, he (Mangudya) promised to preserve value (of the Zimdollar), but since then prices have gone up 3 000% and the currency’s value has devalued by 99%,” Hawkins said.
“He talks about people using the local currency, but if you go to my bank, the hole in the wall (ATM machine) tells you can draw $2 000 which is now worth US$0,88,” he noted.
Hawkins said it was dishonest for the government to insist on the use of local currency.
“If the Zimdollar is so great, why do I have to use foreign currency? It is the inconsistency, the contradiction, the deceit, the dishonesty of the government. They do not believe their own untruths, why should we believe in it,” Hawkins said.
However, Mangudya said shifting from the US dollar to local currency would not be achieved overnight, adding that the country was in transition.
He said the central bank was putting in place measures to incentivise the use of the local unit.
However, the writing is on the wall for the Zimdollar, according to Chanakira.
“We can’t deny the reality,” Chanakira, the founder and former CEO of a now-closed bank, Kingdom Financial Holdings Ltd told Bloomberg.
“When you get the Zimdollar you spend it quickly. No one wants to save in that currency.”