Government will make use of the United States dollar illegal and plans punitive penalties for offenders under a proposed law as it seeks to shore up support for the local currency.
Since the reintroduction of the local currency in June as the sole legal tender, it has been devaluing on the back of lacking adequate levels of foreign currency and market confidence. As such, companies have started redollarising to stay afloat.
According to the Government Gazette released last Friday, government put forward Finance Bill No. 3 2019, an amendment to several monetary Acts, whereby under clause 31, it stated that a civil penalty will be placed on anyone who attempts to re-dollarise.
“This clause incorporates the provisions of the Presidential Powers (Temporary Measures) (Amendment of Exchange Control Act) Regulations 2019. Among other things that the latter measure amended the Exchange Control Act by adding to section 2 of the Act the following ground upon which the President may make regulations: (d) The enforcement of the exclusive use of Zimbabwe dollar for domestic transactions,” the statement reads.
“Additionally, a civil penalty framework was inserted in the Exchange Control Act to enable the sanctioning of attempts to re-dollarisation the economy by means of civil penalties administered by the Reserve bank of Zimbabwe rather than the criminal punishments administered by the police and the NPA.”
The clause continued: “The police and the NPA will retain a role where the civil penalty orders are not complied with after a specific period, but the Reserve Bank of Zimbabwe (RBZ) will be able to recover the sums under a civil penalty order through the civil courts.”
As a result of the Zimbabwe dollar devaluing daily, businesses have been raising the prices of their goods and services according to changes in the forex rates to preserve value.
But since the forex rates continue to fluctuate some businesses have opted to re-dollarise.
Due to the exchange crisis, government reinstated the Monetary Policy Committee (MPC), which was abolished after the economy adopted the multi-currency regime in 2009 with the Bill giving the legal effect of the MPC under clause 30.
Economist and financial expert, Persistence Gwanyanya said the RBZ should fast-track the injection of cash in the market as the slow process is leading to the re-dollarisation due to the foreign currency which is at the market’s disposal.
“De-dollarisation is a market development that does not happen overnight. It is a process that takes years. There should be a level of tolerance by government as the cause of this whole re-dollarisation process is the shortage of cash. Moreover, the market is trying to run away from the 2% tax of the electronic transactions,” Gwanyanya said.
“RBZ should work fast on addressing the cash shortage. I know they want to slowly drop cash to avoid upsetting the market, but the process is taking too long. The government should also deal with market confidence as the people are foreseeing hyperinflation with the use of local currency so to safeguard their money, they would rather keep it in foreign currency.”
Experts have warned against criminalising the de-dollarisation process as it could have negative results.