Introduction of new currency a piecemeal solution

DURING the 2020 national budget presentation in Parliament last month, Finance minister Mthuli Ncube held up a note of the new Zimbabwe dollar and proudly announced that it was tough and resilient.

He said the quality of paper used was stronger compared to that on the bond note that had been in circulation since November 2016.

Looking at the new Zimbabwe dollar notes, they indeed look more durable. But that is probably where the differences begin and end. Moreover, still crispy new, it is difficult to argue otherwise.

Following the introduction of the new currency, there was, however, a lot of public skepticism that it would be the solution to the cash crunch and deep-seated economic malaise afflicting the nation.

In a snap survey, members of the public who spoke to NewsDay said when government started preaching the gospel that a new currency would solve the cash crisis, they knew it was no more than a con song.

While Ncube bragged about the physical durability of the currency, this has not been reflected in its actual value, which has continued to tumble in spectacular fashion against the United States dollar.

The Zimbabwe dollar has taken a heavy knock from major currencies as public confidence in President Emmerson Mnangagwa’s administration continues to wane.

Despite the injection of more cash onto the market in late November, indications were that the money was still not enough, given that banks were limiting withdrawals to between $100 and $300 a day.

RBZ governor John Mangundya indicated that banks should drew more cash from the central bank after the first tranche of $30 million was exhausted in just over a week amid indications that there are 100 000 bank account holders in Zimbabwe.

“We will continue to disburse the money according to the needs of clients,” Mangundya said then.

“It means if there is a shortage, the banks should come to the RBZ to get the money for their customers.”

Analysts, however, feel that although pumping money into the market was good as it would help ease the cash crunch, the challenge was that most of the cash would not find its way back into the formal banking system, as it ended up in the hands of illegal foreign currency dealers.

Social and human development specialist Robert Mhishi said it was difficult to use a “command” system after government outlawed the use of foreign currency for domestic payments, yet curiously allowing it for some of its transactions such as payment of duty on imported cars.

“The country has a long history of command policies that violate basic economic principles, and that is why they are resisted and why they have never worked,” he said. “We saw this under (the late former President) Robert Mugabe and we continue to see it now under Mnangagwa.”

Over the long years of economic collapse, ordinary Zimbabweans have developed a knack for trading in any commodity, including cash.

“One of the biggest mistakes we made was in not creating a culture of using plastic money, even when cash was readily available. If we had done that, there would not have been such a huge appetite for cash, which is now being sold through platforms such as EcoCash, and the arbitrage we now see everywhere in the economy,” Mhishi said.

He further indicated that he did not understand government’s obsession with printing coins, whose value was on a continuous downward trajectory. Already, the 25c coin has largely been rejected by some sections of the market, especially public transport and small grocery shops in downtown Harare, where the majority of people buy their goods.

Many ordinary residents often buy goods at shops in their neighbourhoods or “tuckshops” at the outskirts of the central business district which strictly deal in cash.

One tuckshop owner, who declined to be named, confirmed that she strictly sold her merchandise in cash.

“Cash is easier to deal with because it enables me to purchase foreign currency that I would need to hoard goods from Tanzania when I want to restock,” she said.

“If I have to sell using swipe (point of sale machine) or EcoCash, I will not be able to easily access the money when I need to buy new stock. But if I was able to purchase the forex from the interbank market, then I would obviously accept other forms of payment from my customers.”

People who spoke to NewsDay expressed concern that they might not be able to access sufficient cash for use during the festive season.

“At this rate, this is going to be a very depressing Christmas,” said Cosmas Makoto of Chitungwiza. “In as much as government has assured us that money is available following the release of more cash onto the market, we are not really seeing much of a difference as of now, and it looks like this will continue into the Christmas season,” he said.

Although government has warned cash barons trading cash on the streets, it has not moved to arrest them.

There is a public perception that many of the traders — some of whom have been rounded up by the police and released — are mere fronts for mainly powerful politicians, who provide them with the cash to trade.

As the value of the local currency continues to take a severe bashing from other major currencies, businesspeople and informal traders have resorted to pricing their goods and services in United States dollars.

The Finance minister outlawed the use of the US dollar and a host of other foreign currencies in local transactions in a desperate bid to defend the country’s fledgling new currency against parallel market speculation.

Despite the enactment of Statutory Instrument (SI) 142 of 2009 on June 24 this year and SI 213 of 2019, gazetted under the Presidential Powers (Temporary Measures) Amendment of Exchange Control Act) Regulations of 2019 in September to outlaw the pricing of goods and services in foreign currency, the practice has continued.

According to social commentator, Alex Magaisa, a currency can only become viable if its users have trust in the issuing authority.

He said the reason why the United States dollar was the currency of choice in Zimbabwe was that locals had more trust in the US government than in the Mnangagwa administration.

Writing on his blog when the government first issued the bond note in 2016 — ostensibly to cover the gap created by the shortage of US dollar notes and coins — Magaisa said the surrogate currency was only going to work if the public embraced it.

Although people accepted the bond notes at the beginning, following government assurances that they were backed by a $500 million African Export Import Bank guarantee, the trust was lost when the Harare administration’s appetite for printing money went into overdrive and started to print more and more of the surrogate notes.

Monetary authorities had assured the nation that the official exchange rate between bond notes and US dollar would be pegged at 1:1 because of the Afreximbank guarantee.

“But I’m certain that many Zimbabweans would be happy to hear that Afreximbank has offered Zimbabwe a facility to guarantee 1:1 convertibility of RTGS balances into US dollars,” he said at the time.

The Zimbabwe dollar has depreciated by 564% to date since its introduction in February this year due to lack of market confidence and nothing to back it in terms of gold reserves and export earnings.

In February, government adopted electronic money as a local currency and called it the RTGS dollar, which operated alongside the bond note and multiple foreign currencies at a rate of US$1: ZWL$2.50.

However, this currency was later abandoned after monetary authorities decreed, in June, the Zimdollar as the sole legal tender.

The depreciation of the Zimdollar was confirmed in the United States Food Insecurity Department, FEWSNET’s October 2019 to May 2020 Food Security Outlook report released at the beginning of this month.

FEWSNET stated that as of late October, the local currency had depreciated by over 520% since February 2019, when the interbank market was introduced.

As a result, businesses started selling their goods or services at high premiums using electronic money and discounted prices for those using cash.

“Shortages of the local currency (bond notes and coins) have resulted in the notes and coins being sold at premium rates as high as 40% to 60% against mobile and electronic money transfers on the black market,” the FEWSNET report added.

As the economic chill continues to bite, many Zimbabweans have lost hope of the economy experiencing a rebound under Mnangagwa, who has continued to assure the nation that his government was on the right path and the fruits of their economic policies would soon start to blossom.