Businesses in the resort town of Victoria Falls have been reported as largely rejecting the RTGS dollar. From small businesses, tuckshop, transport operators, accommodation providers and even the local authority. This has left residents in a quandary as many still earn in the local RTGS dollar which has seen better days in. Both the interbank and parallel markets.
According to the reports, large retail shops still accept the RTGS dollar but the risk is they would soon shun it too. However, given that pricing has long been done in US dollar terms and translated to RTGS dollar at the prevailing available rate the distinction is academic. We are effectively priced and paying in US dollars.
The local authority caused a stir as they too moved for US dollar pricing. The council proposed a supplementary budget denominated in US dollars. This was met with outrage by residents as the revenue would also have to be denominated in US dollars.in spite of the resistance the council later passed this resolution. This is in spite of a directive from the government preventing local authorities from doing so.
But there’s a method to their madness
In the narrative of profiteering businesses, we have lost an essential step; businesses need stability. And just as much as we call them businesses they are run and owned by people, who require stability and that is what the US dollar provides. The strength of a currency is not measured by its relative exchange to other currencies at one point in time but by how that exchange rate holds up over time. Losing 60% in 4 months doesn’t bode well. Incidentally, that 60% drop is the same in the parallel and interbank markets.
With year on year inflation within touching distance of 100% pricing in the RTGS dollar is hardly sustainable. The other side of the coin must be addressed as employees should also earn in US dollars in order to complete the loop and according to reports, this is not the case.
In closing, I recall the road to eventual dollarisation in 2009 was not easy either. It was approached with denial but eventually, necessity won. Contrary to what people may have you believe dollarisation in 2009 was not without its teething pains either. While the landscapes then and now are two very different things it remains the option that many believe will sort out some of our problems.
While the bond might have lost 60% value in the last 4 months I still wonder why it’s not crushing on the black market. The other point that proponents of dollarisation need to tell us is whether we have enough USDs in circulation to sustain dollarisation.
Thanks for your feedback Nelson. Contrary to popular belief crashes don’t happen overnight, even the ill-fated Zim dollar had a steady decline that accelerated exponentially. Dollarisation in essence, is the full adoption of a foreign currency so it can be achieved with any currency. However it is highly unlikely that there is enough money in circulation to cover the needs of the nation. But to be fair there aren’t enough bond notes to begin with.
Yes crushes don’t happen overnight. Agreed. The bond note has been in existence since November 2016. It was initially artficially pegged at 1:1 to the US. It was then artificially pegged at 1:2.5 to the USD. I believe the initial rate of 1:2.5 against the USD was never the true value of the bond note. In this regard would it not be correct to say the bond note is trying to find it’s true value. Only time can tell. The fact that there are not enough bond notes might be credited to the government in being shrewd enough not to print more notes.
Yes that is quite correct the market is trying to find a value for the Bond. However I don’t think it’s government shrewdness as they did happily print electronic bond in the form of RTGS. They are more likely to be bound by the original agreement with Afreximbank that bound the bond note. What will be interesting to see is how we progress from the 10 mark we are now at. If indeed the government has stopped electronic printing as they claim we are closer to equilibrium; bonds are estimated at about 1 billion where rtgs brought that to about 10billion with an estimated 1,2 billion US dollars in circulation. I don’t trust that they’ve stopped printing though.
Thanks you for the clarification. If indeed the government is still printing rtgs then a big shame on them. But then how do we know whether or not they are printing the rtgs dollars?
You will know them by their fruit. If the rate increase is determined by money supply and the rate keeps increasing, then…
Yea i saw that when i went there. Evrythng was priced in US and their rate was favourable. I wished i cld stay long in Vic Falls
Thak you for the feedback. The situation certainly has it’s pros and is favourable for smooth flow of business.
Yea i saw that when i went there. Evrythng was priced in US and their rate was favourable. I wished i cld stay long in Vic Falls
Is it sustainable? No one is brave enough to answer this simple question. The prices in USD might appear cheap because the businesses in Victoria Falls are paying salaries, electricity, telephones, rentals etc in rtgs after changing the USDs on the black market. If all these services are to be charged in USD you will find that the prices become unaffordable. And why are they not paying their employees in US.
What worries me most, as it should all of us is that employees are not paid in US dollars. That part is certainly a recipe for disaster.