Monetary and fiscal policies are always an interesting feature in Zimbabwe. At one point the nation had its local currency which was strong and stable around the attaining of independence. Several years later the Zimbabwean dollar plummeted to a point where it had to be done away with. This saw the coming in of the multicurrency regime which brought in some stability for a while. Later we saw the introduction of the bond which in time saw the re-emergence and dominance of the parallel market. In an unprecedented move, the multicurrency regime was abolished and the local currency (ZWL$) became legal tender again. After that, the US dollar was made legal tender again. All this is just to show you that it has been a circus these past several years in Zimbabwe.
US Dollar Over Local Currency – The New Normal?
It is really funny to think that not too long ago firms were refusing to accept US dollar payments. This was premised on the status of the US dollar as illegal tender at the time. Interestingly, most consumers were so eager to pay in US dollars due to how cheaper it was than to pay using the local currency. Now the US dollar is legal tender again and firms are now demanding US dollar payments and not local currency payments. Is this the new normal? Well, let me highlight a brief background.
Local Currency Payments Used To Be Highly Favourable
This was a time when exchange rates had not gotten out of hand. What was happening was that consumers would convert their hard cash (foreign currency or bond) into RTGS$. This was akin to increasing the value of the money you had. This was especially so when you wanted to purchase goods or services from professional firms e.g. supermarkets. The thing is, 50 bond is equivalent to RTGS$50 if you purchase from say, OK supermarket. Thus at the time, people were huge proponents of paying in local currency particularly RTGS$. Firms did not mind because they would channel the floats to the parallel market. This then changed when the US dollar was legalized again. Why are firms insisting on US dollar payments? Well, there are several reasons to look at.
High Volatility Of The Local Currency
The local currency has always been volatile especially in light of parallel market activities. This time, however, some interesting developments are influencing this. The on-going lockdown scenario has exacerbated the foreign currency shortages that have always riddled this nation. This has ultimately driven up the demand for the greenback. That, in turn, has led to the further deterioration of the local currency’s value. There are fluctuations here and there but overall, the local currency has been gradually losing value. The uncertain nature of the ZWL$’s value makes it very unfavourable.
Restrictions On EcoCash and ZIPIT Monthly Limits
The recent crackdown on EcoCash and ZIPIT by the central bank has created some hurdles. Here is the thing; most firms are active in illicit parallel market dealings. This means most firms favoured RTGS$ payments because they would use the float to buy US dollars on the parallel market. However, the tide turned with the recently stipulated monthly transfer limits of ZWL$20 000 on ZIPIT and ZWL$100 000 on EcoCash agent lines. This means not much (as before) can be realized from parallel market activities. This has made firms shun payment for goods and services using local currency.
Business Sustainability Issues
It is common knowledge that most firms procure their things from outside the country. This calls for foreign currency which has to come from business operations. If firms accept payments in the local currency, this places them in a scenario where they have to then buy the foreign currency from the parallel market. This is costly to the business due to high rates charged for buying foreign currency using the local currency. This causes firms to favour payments in US dollars to avoid the parallel market.
The Ordinary Consumer Suffers The Most
When you look at the decisions firms are taking, they are largely informed by the ethos of strategic business management. Most firms are just responding to the status quo in a way that keeps them afloat. This does not negate the fact that some are profiteering though. Anyways, the irony is that ordinary consumers (who are the majority) are the ones who are suffering the most. Most of them are barely managing to realize income due to lockdown restrictions.
As for those getting some form of income, most of them are getting it in ZWL$. For them to then purchase goods or services in US dollars they have to buy it from the parallel market. Picture this example, someone is earning ZWL$2500 per month – mind you most are even getting less than that. Supposing the RTGS dollar to US dollar rate is at 65, this means that person’s income is roughly US$39. That person has monthly fixed expenses – I do not even have to enunciate how tough it is for that person to get by.
If the current trends keep up, most people feel that the nation could be returning to the 2007/2008 era. Ultimately all sorts of reasons can be cited, even money changers being blamed but the fundamental source of the problem is not them. People are striving to make a living and after all, it is government officials fuelling parallel market activities. For as long as monetary and fiscal policies are not put in order, things can only get worse.