ZIMBABWE, HARARE – Over the last decade, Zimbabwe has been using the US Dollar as part of its multi-currency mix. Facing an array of challenges, the government of Emmerson Mnangagwa has subsequently decided to introduce its own currency again.
Zimbabwe has not had a local currency since 2009 when it abandoned the Zimbabwe dollar due to hyperinflation that reached 500 billion percent, according to the International Monetary Fund (IMF). To address rising inflation, Zimbabwe adopted a multi-currency system dominated by the US dollar.
However, a shortage of cash dollars pushed the government in 2016 to issue a surrogate currency called bond notes, to trade alongside electronic money, which are funds electronically deposited into bank accounts.
Officially, the government maintained that the bond notes and the electronic money were equal to the US dollar. But both have been devaluing quickly against the dollar on the illegal, but thriving, black market, forcing many businesses, including the government itself, to only accept the dollar for some transactions
As such, the government announced measures to address this currency crisis. As such, the Reserve Bank of Zimbabwe announced that banks can now offer market-determined rates to buy cash dollars with the bond notes or through electronic transfers.
Bond notes and electronic funds will be known as a separate currency called Real Time Gross Transfer dollars, or RTGS dollars. They will continue using other foreign currencies such as the dollar and the South African rand. In addition, the Reserve Bank didn’t announce a fixed exchange rate for the new RTGS dollars and U.S. dollars.
Shifting away from the U.S. dollar marks a watershed moment for Zimbabwe. While historically adopting the dollar put an end to Zimbabwe’s continually rising inflation, it created serious economic problems in recent years as the greenback appreciated compared to the currencies of neighboring countries such as South Africa, its main trading partner. Zimbabwe’s exports became less competitive, and actual dollars were increasingly in short supply.
On the black market, a cash dollar in recent weeks cost as much as $4 in bond notes or electronic funds transferred through Zimbabwe’s mobile money Ecocash. Compounded with the burgeoning black market and rising inflation, the lack of dollars has led to serious shortages in everyday goods that need to be imported. Recently, the Grain Millers Association of Zimbabwe warned the National Bakers Association that the country would run out of bread flour within eight days.
The initial rate for Zimbabwe’s currency, known as RTGS dollars, will be 2.5 per US dollar.The rate was agreed on with commercial lenders.The measures come as the government scrambles to end a currency shortage that’s pushed inflation to the highest rate since 2008 and sparked shortages of fuel and bread.
Rebuilding the Economy
Zimbabwe has undertaken a plethora of measures to improve and stabilise its economy, with the belief that these measures will accelerate and deepen the ease and cost of doing business, so as to attract increased levels of Foreign Direct Investment.
This includes the establishment of a One-Stop Shop Investment Centre – the Zimbabwe Investment and Development Agency (ZIDA), which is set to be fully operational in the next few months, and will enable the processing of investment approvals within a day.
Zimbabwe’s current reforms are guided by the Transitional Stabilisation Programme (TSP), which was launched in October 2018, with the main aim of stabilising the economy, attracting FDI and setting the foundation for shared and sustained growth.
In addition, the shift in monetary policy was to seek to remove the distortions which prevented efficient functioning of the economy as a whole, pushing prices beyond the reach of most Zimbabweans.
In contrast, the new monetary policy is likely to promote stability, bring down prices and build confidence.
However, much conjecture still exists around the causes of the crippling of Zimbabwe’s economy over successive decades. While the popular view centers on the mismanagement of the land reform process, a number of researchers have shifted the blame to the global community, specifically the Global North, which placed sanctions on Zimbabwe because it condemned its land reform programme.
This condemnation resulted in creating an isolated Zimbabwe that was unable to effectively re-build its economy over successive years. While these sanctions aim to be a punitive measure for rogue governments, in the case of Zimbabwe, the punishment disempowered thousands of Zimbabweans, leaving millions without work, and igniting mass immigration south of the Limpopo River.