A new breed of street hustler, hawking US dollar and rand notes, is emerging in Zimbabwe’s capital, Harare, as opportunities to trade in soiled and smaller denomination foreign currency notes emerge due to the rapid dollarisation of the economy.
This gives a rare glimpse into arbitrage opportunities bleeding the country of key foreign currency, as hard currency ends up on the streets and is sold to importers, retailers, fast food counters and other businesses at a premium.
Since the Zimbabwean government started allowing holders of free funds to import their own fuel around August 2019, street-smart Zimbabweans have been hawking soiled and smaller denomination US dollar and rand notes in suburbs and new settlements in and around Harare.
Where are all these overused…COVID19 prone USD1, USD5 notes coming from? where were they these past 3 years?, I last saw them in 2016? Or maybe they are now coming into the formal economy? pic.twitter.com/MufYvgxBWU
— Busisa Moyo (@BusisaMoyo) July 8, 2020
Record hyperinflation decimated Zimbabwe’s own currency in 2008, with the country abandoning it in 2009 as it adopted the US dollar and other currencies which remained in use until 2019, when the government banned the usage of foreign currencies after re-introducing the Zimbabwe dollar.
However, the the new Zimbabwe dollar quickly lost value, with Zimbabweans preferring to trade in US dollars or rands in some parts of the country.
This forced the government to re-legalise the use of foreign currency, but also gave rise to shortages of change in shops, creating opportunities for hawkers to trade in smaller denominations. Soiled notes, meanwhile, are now also being traded as they are accepted as payment for imports.
Economists, industrialists and business leaders say this could work against the newly introduced foreign currency auction market, under which 1 US dollar buys 65.8 Zim dollars. The street rate, meanwhile, is US$1:ZWL85.00.
This means that, on the streets of Harare, a US dollar can be exchanged for more Zim dollars than the official government rate.
“What happens is that we get deals to look for soiled rand and US dollar notes, which are otherwise not acceptable in the supermarkets and other shops,” one of the cash hawkers, who only identified himself as Eddy, told Fin24 in an interview at an informal settlement some 37 kilometres outside Harare’s business district.
He added: “The deal is that importers utilise that money to pay for imports through the banks, because the notes cannot be directly banked or deposited, but are acceptable as payment for imports through the banks.
— Happi Zengeni (@happ_zenge) July 8, 2020
There is widespread speculation that the cleaner bills are for sale at a premium, while there are also worries that some of the notes are being smuggled out of the country through syndicates. This comes as Zimbabwe’s economy is increasingly dollarising.
The rapid re-dollarisation of Zimbabwe’s economy has also given rise to shortages of change in smaller denominations at supermarkets and other retail outlets, such as filling stations and beer outlets.
This has given fresh opportunities to Zimbabwean cash traders, who are currently operating against transaction limitations after the government closed mobile money agent lines. The street cash traders are selling smaller US dollar denomination notes at a premium to retailers desperately in need of the smaller bills to give to customers as change.
Nathan Hayes, economist at the Economist Intelligence Unit, explains that “shortages of physical cash in Zimbabwe are creating a premium for low denomination notes”, which is heralding “another parallel market” rate at US$1.1:US$1.
For 34-year-old Anastacia Maredza, hawking cash is lucrative and much better than standing at street corners hustling for individual customers intending to exchange their foreign currency into Zim dollar.
Among the major sources of foreign currency in Zimbabwe at the moment are tobacco and gold sales, remittances and a few companies, such as those in mining, and non-governmental organisations that are paying salaries and allowances in US dollar.
In the high and medium density suburbs of Harare, traders shout at the top of their voices as they try to outdo each other purchasing soiled rand and US dollar notes at half their value. Some of the better-looking smaller denomination notes are patched up using glue later in the day and sold at a premium to retailers.
“It’s worth it and much better than sticking around in town and running battles against police and municipal authorities. In the locations, returns are better and here and there you also get opportunities to exchange foreign currency, so I am finding it lucrative,” explains Maredza.
Authorities in Harare are at pains to see the forex auction system, which replaced a fixed exchange rate regime in June, succeed and help usher in some discipline onto the market.
However, the weekly auctions remain a preserve of bigger economic players and, meanwhile, at the bottom and middle rung of the economy, arbitrage opportunities are eating into half of the gains the government hopes to achieve by financial sector reforms.