In a somewhat shock development, the government of Zimbabwe has moved to end the multicurrency era. Statutory instrument 124 of 2019 removed the US dollar, British Pound, South African Rand, Botswana Pula and all other currency units as legal tender in Zimbabwe. The instrument also moved to rename the bond note and RTGS dollar to the Zimbabwean dollar at parity. This instrument takes effect from 24th June 2019. While in all earners the foreign currency had become scarce long before this it rubber stamps the full return to a Zimbabwean dollar.
President Emmerson Mnangagwa has spoken on two previous occasions about the need for a local currency and that currency being the sole legal tender. While we had initially been given projections as vague as “within the year” and “within 9 months” it has come as little surprise to those paying attention that this move has come.
The government through Finance Minister Mthuli Ncube has long decried the inflationary effect that pricing based on our former unit of account the US dollar has had. Inflation data for the month May showed a 97.85% year on year inflation position. The instability of the RTGS dollar evidenced by its loss of 60% of its inception value in just four months has led to pricing based on foreign currency and the rate of the day applied to reveal daily prices. The effective rate utilized being the parallel market rate as it is more accessible to more of the market. Businesses have largely resorted to using the US dollar as a real value unit in order to protect value and also because many products or components of products are imported.
Attempts to contain prices through the interbank foreign currency have dismally failed and this seems to be the next step in the battle. Of immediate concern are amounts in Nostro Foreign currency accounts which are not affected by this. All statutory requirements to pay foreign currency duty are also not affected by this. The interbank market will also be key to developments in this story and whether or not any changes will be made to this is as yet unknown.
Commentators have already expressed their fears that this will lead retailers and those who were selling in foreign currency to withdraw stock, harshly escalate pricing or both. Without making changes to the operation of the interbank market this may not change much. The parallel market already operates outside the law and will simply continue to do so. Those in business may continue to use the parallel market to access foreign currency to restock – at a premium.
So the new currency is here. It is the old currency, in the form of the current currency. As with the switch to the RTGS dollar, the same units in existence as notes, coins and electronic balances will continue to be utilized. The greater effect will be the old memories that the Zimbabwean dollar stirs amongst those who remember the last dance with it.