A number of businesses, especially manufacturers, retailers and suppliers, are refusing to accept payment in local currency in preference for US dollars and cash citing persistent volatility of the Zimbabwe dollar.
The rejections by firms, among them a leading bread and biscuits maker, a furniture manufacturer and a fast moving consumer goods manufacturer that also produces soap, is likely to further dent confidence in the domestic currency barely two years since its reintroduction following a decade long hiatus.
Fears abound if unrestrained, the down spiral in the Zimbabwe dollar value may condemn the local currency to the same fate it suffered in early 2008, resulting in it being scrapped, prompting the adoption of multi-currency system, anchored by the US dollar.
Confederation of Retailers of Zimbabwe (CZR) president Denford Mutashu, acknowledged the development, saying firms claimed volatility and sliding confidence in the local unit was its growing rejection.
“It (rejection of RTGS dollars) is an issue that we have picked in the market. A number of suppliers and manufacturers have opted to deal only in cash and hard currency and the concerns are around the instability of the local currency,” he said.
Mr Mutashu said there had been a growing gap between the exchange rates for RTGS dollars and cash, which has been putting unrelenting pressures on commodity prices in Zimbabwe, hence falling exchange rate and the resultant galloping inflation.
“Lack of adequate enforcement (of rules and regulations) by all critical players is complicity or regarded as complicity in what is happening,” he said.
Notably though, this comes as the Reserve Bank of Zimbabwe (RBZ) has recently tightened the screws on financial institutions and mobile money operators to institute more stringent evaluation around know your customer principles in order to flush out speculators.
Further, the apex bank has in the meantime put limits on the amount of transfers that depositors can move out of their bank accounts or mobile money wallets to reduce or foil transfers for purposes of money laundering and currency trading, which undermines the domestic currency.
“Of course, the fundamental issue is confidence because we need to apply efforts in restoration of confidence in the banking sector, especially relating to our local currency. There isn’t appreciating confidence in the RTGS money or general currency in circulation; it’s one scenario we have picked after the introduction of $10 notes,” Mr Mutashu said.
From an exchange rate of $2,5 to the US dollar on reintroduction in February last year, the Zimbabwe dollar’s electronic version has plummeted to $65 against the greenback on the black-market.
The domestic currency assumes slightly varying rates depending on its form in cash, that is notes or coins and means of electronic transfer namely ZIPIT, EcoCash, OneMoney and Telecash among others.
Economist Professor Gift Mugano said while a combination of factors had caused the local currency to lose ground against the US dollar, it’s latest free-fall was being fuelled by a mad rash for value preservation by all. But he also noted that issues such as structural deformities of the economy like lack of production, dependency on imports, limited forex generation capacity, excessive money supply growth and inflation had conspired to pile exchange rate misery on the Zimbabwe dollar.