For roughly 29 years, our nation had its own currency – the Zimbabwean dollar. However, 22 years ago on November the 14th, the Zimbabwean dollar crashed. I won’t go into detail on what triggered that crash but I’m sure most of you recall the causes. Due to incessant upward reviews of denominations (which started off in 2001) due to hyperinflation, the currency ultimately had to be abandoned.
By the way, the focus of my article is to look at how the USD was initially and has always been believed to be undervalued since the onset of the multi-currency regime. First, let me continue the recap of the events that culminated into dollarization.
Sometime in 2003 travellers’ cheques came onto the scene but were short-lived due to a widespread dislike for them. September of the same year saw the emergence of the infamous bearer cheques. Many of you will recall a time when an egg cost 50 billion dollars, right? Also recall the history-making 100 trillion dollar note? Well, all this paved way for the introduction of a multicurrency regime with the USD being the dominant currency. Dollarization became official on the 29th of January 2009.
The USD Was A Game Changer
As soon as dollarization hit the scene, hyperinflation was curbed and the economy was reinvigorated. The shop shelves that had gone empty literally got packed again overnight. However, there was one thing that became the subject of widespread social discussions – the undervaluing of the USD locally. There has always been that believe that locals underestimated the true value of the USD, particularly between 2009 and 2013.
The Undervaluing Of The USD
Since the introduction of the multicurrency regime, the greenback was readily available to virtually anyone. Basically, all people on salaries were getting them in USD which also meant businesses didn’t struggle to get foreign currency. In light of all this, the prices of goods services were somewhat affordable for the general populace. This somehow cast oblivion over how unreasonable the costs of most things were in USD – there has always been discussion around this. What do you think; has this always been the case? Let us know in the comments below.
USD Prices Now Much Lower
There are a lot of factors that have given rise to this which is why it’s a topic of debate as to whether the change reflects a true valuation of the USD locally. If you remember the fuel price hike in January that led to violent protests you would be interested to know that before that hike fuel averaged 60 US cents per litre. This is one of the reasons why the government said it was necessary to hike the fuel prices. That was of course ridiculously low across the sub-Saharan region.
Thus when the price hike was effected, the average cost of fuel was USD1.30. Examples like these of ridiculously low USD prices have been attributed to the dynamics of the parallel market. Now again with the further tumbling of the RTGS$ against the USD, we are back again to a scenario where a litre of fuel is costs way less than USD1. This is a jackpot for those who earn USDs directly because fuel is now much cheaper for them. Even when you look at bread which now costs RTGS$3.50; if you consider the prevailing parallel market rates, you’ll notice that a loaf of bread is now costing so much less than USD1. Same goes for the rental arena where, for instance, a 2 bedroom apartment that was costing say USD350 now costs around USD150 or even less. So the general outlook is that USD prices for most goods and services are now way cheaper than before.
The downside though is that not everyone, in fact, the vast majority, are getting their incomes in USD. This is why the finance minister has been making calls for exchange rates not to be factored in in pricing. However, it’s inevitable for businesses to do that because that’s the only way they can stay afloat.
So Is It A Question Of The USD Now Being Appropriately Valued?
This really isn’t a question that can be answered in black and white. The general hypothesis is that since USD prices are cheaper now than before it supposes that the USD was being undervalued before. This is where the discussion lies in and we would love to hear your thoughts on that. There are, of course, other factors to consider the first one being the parallel market. Principally the interbank market was introduced to try to annihilate the parallel market. That is not bearing the desired fruits though due to lack of adequate supply on the interbank market, plus no absolute liberalization (government control is still there). The price decreases in USD terms that are being witnessed could be because of waning consumer demand due to ever-declining buying power. The fact that most people earn RTGS$ gives that a lot of traction. The other aspect lies in that since the RTGS$ is weakening against the USD, lowering USD prices incentivises people to endeavour to make purchases in USD. This then helps businesses to easily get forex without having to go to the parallel market.
So my article today is opening up room for a discussion around the dynamics of the issues I highlighted herein. It’s quite ironic that if you can earn USDs directly then your livelihood is automatically improved considering the current operating environment. Sadly most people earn incomes in RTGS$ and thus they won’t get to enjoy the convenience of lower prices in USD.