Bizarre Currency Woes in Zimbabwe
By Thembi Mabhula
At long last, Zimbabwean people are using a stable currency that they can bank and hold on to for a considerably longer time without fears of losing its worth due to galloping inflation. People can now go into supermarkets whose shelves are packed with foodstuffs and leave with plastic bags full of groceries. The situation for most people has improved dramatically. The Zimbabwe Dollar is officially dead, killed off in the hope of curbing record world inflation of billions of percentage points.
The Zimbabwe hyperinflation situation has been redeemed by the introduction of the United States (US) Dollar and the South African (SA) Rand to replace the Zimbabwe Dollar. Whether the measure of switching currencies is temporary or permanent, remains unknown. The currency manoeuvre by the Zimbabwean government is so far applaudable, but is it sustainable or legal?
Both the US Dollar and the SA Rand are in full use as legal tender. Government payments and civil servants’ salaries and bank transactions are conducted in US Dollars and SA Rands. In a statement released earlier in January 2009, the Zimbabwe Congress of Trade Unions (ZCTU) demanded that "all workers should be paid in foreign currency, given the fact that shops are now selling their goods in foreign currency—even those that have not been licensed to do so (IRAN Africa, Humanitarian news and analysis, 2010). The legalising and use of foreign currencies since January 2009 has caused general consumer prices to stabilise again after years of hyperinflation and price speculation.
However, money in circulation is too limited to meet the troubles and demand of an already ruined economy. Most Zimbabweans lack the money needed to buy basic goods. Some US Dollar notes and SA Rand notes are terribly worn out due to being overused. Clearly there needs to be a way of feeding in more notes to increase the amount of money in circulation. The Black Market plays a significant role in feeding currency into circulation through illegal means. Zimbabweans want the currency that gives them access to food and other commodities, legal means of banking are the least of their concerns. Some people simply visit South Africa or Botswana to work for a short period of time and then go back to Zimbabwe with the Rand or Pula in order to facilitate the purchase of essentials.
In an effort to contain the rampant inflation, the government of Zimbabwe adopted the SA Rand directly, and imported the SA inflation rate as well. However, unlike the economy of South Africa, Zimbabweans’ salaries are extremely low and interest rates are very high. Consequently, Zimbabwe’s control over its monetary policies is currently somewhat hazy. Simply put, Zimbabwe falls within the shadow of South African monetary market behaviour.
Zimbabwe has no say over how the SA Rand should operate in the international market. Moreover, consumers are forced to find their own ways of getting the currency. This does not help the economy of Zimbabwe. In a perfectly functioning and buoyant economy, businesses should respond to increased demand for goods and services by ordering more raw materials and increasing production. According to Itayi Garande, a significant volume of foreign currency cash transactions eludes the banking system. Much of the anticipated increase in production does not occur, because there is no foreign currency to buy raw materials to increase production. A higher demand is not met with a higher supply (Garande, NewZimbabwe.com, 2009).
If Zimbabwe is to attain sustainable economic expansion, savings and production will need to be boosted, and debt and certain types of spending lowered. Unfortunately, one of the biggest problems facing Zimbabwe at this time is that the savings rate is extremely low and productive capacity has fallen to an all-time low. The return of Zimbabwe Dollar is completely impossible despite the fact that Mugabe recently made an announcement that the Zimbabwe Dollar would be back in circulation soon. Nobody seems to share in his optimism.
In the past six months many people living in areas where the SA Rand is widely used have since suffered a major reduction in spending power. This is as a result of the strengthening of the SA Rand against the US Dollar, which moved from ZAR 10: US$1 to ZAR 7.2: US$1, representing 28 percent appreciation in value, (Gomo, Economic View from Zimbabwe, 2009). People who earn US dollars are very bitter, because of the movement of currency cross-rates and they are demanding that the government abandons use of both currencies and use only the SA Rand.
There is no point in asking, “Where did things go wrong?” The writing has been on the wall for a long time. Mugabe remains extremely arrogant, claiming that the Zimbabwe Dollar is still the main currency, over the Rand and the US Dollar, and anticipating the domestic currency being re-introduced.
It is true, as Itayi puts it, that corruption and illegal money transactions led to state collapse, as witnessed in the Democratic Republic of the Congo. The government has a huge role to play in combating corruption and the looting of public resources. It is only after Zimbabwe deals with this malaise in a significant way that the economy will start to truly recover.
References
• IRIN Africa. Humanitarian News and Analysis. 2 February 2010. ZIMBABWE: Inflation at 6.5 quindecillion novemdecellion percent. Accessed online: http://www.irinnews.org/Report.aspx?ReportId=82500. Retrieved 02/02/2010.
• Macdonald Dzirutwe. Newzimbabwe.com. 11 December 2009. Zimbabwe Inflation Hits new Record. Accessd online: http://www.newzimbabwe.com/pages/inflation 122.15805.html. Retrieved 01/02/2010.
• Itayi Gamande. Newzimbabwe.com. 11 December 2009. Zimbabwe’s inflation a problem for all. Accessed online: http://www.newzimbabwe.com/pages/inflation70.14310.html. Retrieved: 02/02/2010.
• Takarimba Gomo. Economic Views from Zimbabwe. 12 November 2009. Mugabe Says Zimbabwe Dollar Returning. Accessed online: http://odettejohnrobertson.blogspot.com/2009/11/Mugabe says zim dollar: Retrieved: 02/02/2010.
At long last, Zimbabwean people are using a stable currency that they can bank and hold on to for a considerably longer time without fears of losing its worth due to galloping inflation. People can now go into supermarkets whose shelves are packed with foodstuffs and leave with plastic bags full of groceries. The situation for most people has improved dramatically. The Zimbabwe Dollar is officially dead, killed off in the hope of curbing record world inflation of billions of percentage points.
The Zimbabwe hyperinflation situation has been redeemed by the introduction of the United States (US) Dollar and the South African (SA) Rand to replace the Zimbabwe Dollar. Whether the measure of switching currencies is temporary or permanent, remains unknown. The currency manoeuvre by the Zimbabwean government is so far applaudable, but is it sustainable or legal?
Both the US Dollar and the SA Rand are in full use as legal tender. Government payments and civil servants’ salaries and bank transactions are conducted in US Dollars and SA Rands. In a statement released earlier in January 2009, the Zimbabwe Congress of Trade Unions (ZCTU) demanded that "all workers should be paid in foreign currency, given the fact that shops are now selling their goods in foreign currency—even those that have not been licensed to do so (IRAN Africa, Humanitarian news and analysis, 2010). The legalising and use of foreign currencies since January 2009 has caused general consumer prices to stabilise again after years of hyperinflation and price speculation.
However, money in circulation is too limited to meet the troubles and demand of an already ruined economy. Most Zimbabweans lack the money needed to buy basic goods. Some US Dollar notes and SA Rand notes are terribly worn out due to being overused. Clearly there needs to be a way of feeding in more notes to increase the amount of money in circulation. The Black Market plays a significant role in feeding currency into circulation through illegal means. Zimbabweans want the currency that gives them access to food and other commodities, legal means of banking are the least of their concerns. Some people simply visit South Africa or Botswana to work for a short period of time and then go back to Zimbabwe with the Rand or Pula in order to facilitate the purchase of essentials.
In an effort to contain the rampant inflation, the government of Zimbabwe adopted the SA Rand directly, and imported the SA inflation rate as well. However, unlike the economy of South Africa, Zimbabweans’ salaries are extremely low and interest rates are very high. Consequently, Zimbabwe’s control over its monetary policies is currently somewhat hazy. Simply put, Zimbabwe falls within the shadow of South African monetary market behaviour.
Zimbabwe has no say over how the SA Rand should operate in the international market. Moreover, consumers are forced to find their own ways of getting the currency. This does not help the economy of Zimbabwe. In a perfectly functioning and buoyant economy, businesses should respond to increased demand for goods and services by ordering more raw materials and increasing production. According to Itayi Garande, a significant volume of foreign currency cash transactions eludes the banking system. Much of the anticipated increase in production does not occur, because there is no foreign currency to buy raw materials to increase production. A higher demand is not met with a higher supply (Garande, NewZimbabwe.com, 2009).
If Zimbabwe is to attain sustainable economic expansion, savings and production will need to be boosted, and debt and certain types of spending lowered. Unfortunately, one of the biggest problems facing Zimbabwe at this time is that the savings rate is extremely low and productive capacity has fallen to an all-time low. The return of Zimbabwe Dollar is completely impossible despite the fact that Mugabe recently made an announcement that the Zimbabwe Dollar would be back in circulation soon. Nobody seems to share in his optimism.
In the past six months many people living in areas where the SA Rand is widely used have since suffered a major reduction in spending power. This is as a result of the strengthening of the SA Rand against the US Dollar, which moved from ZAR 10: US$1 to ZAR 7.2: US$1, representing 28 percent appreciation in value, (Gomo, Economic View from Zimbabwe, 2009). People who earn US dollars are very bitter, because of the movement of currency cross-rates and they are demanding that the government abandons use of both currencies and use only the SA Rand.
There is no point in asking, “Where did things go wrong?” The writing has been on the wall for a long time. Mugabe remains extremely arrogant, claiming that the Zimbabwe Dollar is still the main currency, over the Rand and the US Dollar, and anticipating the domestic currency being re-introduced.
It is true, as Itayi puts it, that corruption and illegal money transactions led to state collapse, as witnessed in the Democratic Republic of the Congo. The government has a huge role to play in combating corruption and the looting of public resources. It is only after Zimbabwe deals with this malaise in a significant way that the economy will start to truly recover.
References
• IRIN Africa. Humanitarian News and Analysis. 2 February 2010. ZIMBABWE: Inflation at 6.5 quindecillion novemdecellion percent. Accessed online: http://www.irinnews.org/Report.aspx?ReportId=82500. Retrieved 02/02/2010.
• Macdonald Dzirutwe. Newzimbabwe.com. 11 December 2009. Zimbabwe Inflation Hits new Record. Accessd online: http://www.newzimbabwe.com/pages/inflation 122.15805.html. Retrieved 01/02/2010.
• Itayi Gamande. Newzimbabwe.com. 11 December 2009. Zimbabwe’s inflation a problem for all. Accessed online: http://www.newzimbabwe.com/pages/inflation70.14310.html. Retrieved: 02/02/2010.
• Takarimba Gomo. Economic Views from Zimbabwe. 12 November 2009. Mugabe Says Zimbabwe Dollar Returning. Accessed online: http://odettejohnrobertson.blogspot.com/2009/11/Mugabe says zim dollar: Retrieved: 02/02/2010.