While presenting the 2020 Monetary Policy Statement on Monday, Reserve Bank of Zimbabwe governor John Mangudya said the country was making steady progress in de-dolllarising. This came after the new dispensation last year abolished the multi-currency regime which had been in use since February 2009 and reintroduced the Zimdollar.
“The bank shall, therefore, continue to provide incentives to promote and defend the use of the local currency within the economy in order to support the de-dollarisation process,” Mangudya said.
But it seems the RBZ is fighting a losing battle. What Mangudya said and what is on the ground are exact opposites. In fact, Mangudya is indicating to turn left and the market is turning right.
While government’s policy thrust is to switch the economy to local currency-denominated pricing, the reality is that the Zimdollar is losing ground – the market is virtually redollarising.
Before ink had dried on the Monetary Policy Statement, one of the leading petroleum suppliers, Zuva, announced a list of service stations that will be selling fuel in hard currency.
“For your convenience, we are excited to announce 8 Zuva DFI service stations that will be accepting foreign currency payments across the country …,” Zuva Petroleum said in a notice.
The prices of the scarce liquid were pegged around US$1,25 for diesel and US$1,22 for blended petrol and prices vary depending on location. Ironically, Zuva is owned by banker John Mushayavanhu and the country’s first citizen, allegedly.
Zuva Petroleum’s formal dollarisation will open floodgates of applications from companies seeking approval to charge their goods and services in hard currency.
The government will be overwhelmed and this has already sparked the journey to formal dollarisation of the economy.
Or maybe we now have one law for Zuva and another law for the rest of fuel companies.
However, the de-dollarisation that Mangudya is yearning for is unlikely as the local currency was introduced minus vital economic fundamentals to support it.
For de-dollarisation and the use of a fully-fledged currency to succeed, the country should attain a sustainable gross domestic product (GDP), have a stable inflation rate, a reduced debt ratio, increased level of savings and investments to at least 25% of GDP and a reduced balance of payments.
Although manufacturers have been forced to accept the worthless local currency for fear of the unknown, they are basically charging their goods indexed on the United States dollar rate.
Businesses have been periodically reviewing prices of goods and services to keep up with exchange rate movements.
They have to keep up with the Kardashians! But the informal sector — the mainstay of the economy — flatly rejected the Zimdollar from its inception, opting to charge their goods and services in US dollars. Who would fault them? No one!
The government itself is undermining its own currency statutes, as it is collecting some statutory obligation such as tax in foreign currency.
The Registrar-General’s Office was also given the green light to charge passport fees to those who have “free funds” in forex.
Fast-food outlets, pharmacies, private hospitals, government departments and parastatals are all charging their goods and services in hard currency.
Power utility Zesa was last year given the green light to price electricity in hard currency and this has brought stability to the mining industry.
Studies have shown that countries that once adopted the United States dollar as their currency have struggled to come out of the hole, even after the underlying causes had been removed.
It will take time for Zimbabweans to gain confidence and trust in the Zimdollar, especially after losing their earnings and savings during the 2008 hyper-inflationary period.
The market remains addicted to the greenback in spite of the disappearance of those factors that initially led to dollarisation.
In 1985, the Peru government (led by Alan García) initial forced conversion of foreign currency deposits to the local currency (nuevo sol) left a sour test on the economy.
This had a catastrophic effect of substantial financial disintermediation and capital flight.
In 1982, the Bolivian government tried to de-dollarise its economy by converting US dollar-denominated financial instruments to pesos bolivianos at an exchange rate below the parallel market rate.
Price controls and interest rate caps were then introduced to avoid currency manipulation, but this had disastrous consequences. Inflation roared back, souring to over 20 000%.
While Zimbabwe needs its own currency for development, this ill-timed de-dollarisation can be the cause of artificial shortages of basic commodities such as mealie-meal and fuel.
It’s a pity that salaries have remained stagnant in the wake of price adjustments as businesses race against exchange rate fluctuations.
It seems Mangudya is living in wonderland. Time is now for him to disembark from the ivory tower and face reality. That is the curse of Africa leadership.
They have no time to get first-hand information on what’s happening on the market, but prefer to rely on reports, which in most cases are misleading.
It seems, it is only Mangudya and Treasury chief Mthuli Ncube who are not aware of what is happening in Jerusalem. It’s folly for the government to bury its head in sand and ignore the redollarisation echoes being sounded by the market.
The US dollar, which the government thought they killed by promulgating Statutory Instrument 142 of 2019 has risen from the dead and is now running the show.
Cliff Chiduku is a journalist who writes here in his personal capacity. Feedback: email@example.com