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MONEY WOES

The US dollar is king as Zimbabwe’s currency woes prevail

Thousands of US dollars in a pile
REUTERS/RICK WILKING/FILE PHOTO
Spikes in the prices of basic commodities shows how the Zimbabwean dollar (ZW$) is failing to hold against its benchmark, the US dollar.
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In September 2021, the Zimbabwean government introduced a facility for citizens to access US dollars at selected bureau de change in the country. This was in a bid to improve access to forex in a time of hyperinflation. To curb abuses an individual could only get $50 maximum per week.

But the Central Bank governor John Mangudya, in a monetary policy statement released on Feb. 7, has now further limited the $50 facility to an even smaller group of individuals citing abuse by some citizens. Before the directive, people queued daily at these bureau de change for hours to get money with others even sleeping outside banks.

As Zimbabwe’s economy struggles, the demand for US dollars  keeps soaring. Spikes in the prices of basic commodities shows how the Zimbabwean dollar (ZW$) is failing to hold against its benchmark, the US dollar.

History suggests that Zimbabwe’s current path will lead to a dead-end.

In January, Zimbabweans were hit by exorbitant prices with some products even tripling in price. On Jan. 9, the price of bread went up by 15% following an increase  in the bulk price of flour. At the official exchange rate, in January, the ZW$ is trading at 1:116 against the US dollar while at the parallel market, the rate is almost double that.

Why are Zimbabweans desperate to get US dollars?

According to Jee-A van der Linde, an economist at Oxford Economics Africa, a provider of independent economic and political research on Africa, delays and policy missteps have eroded Zimbabwe’s monetary credibility.

“Various changes in the country’s currency regime over the years demonstrate how desperate officials are to quash exchange rate disparities, but at the same time, unwilling to make difficult decisions. History suggests that Zimbabwe’s current path will lead to a dead-end,” he says.

The Zimbabwean dollar was introduced by finance minister Mthuli Ncube in 2019 ending the decade’s use of the multi-currency regime which was adopted in 2009 to tackle the 2008 hyperinflation.

But barely three years after its introduction, the local currency is on the verge of collapsing and the country is re-dollarising at an unprecedented rate.

Electricity tariffs were also hiked by the power utility company, the Zimbabwe Electricity Supply Authority despite ongoing load shedding caused by power shortages at Lake Kariba and Hwange Coal power plant, the country’s main sources of power.

These exorbitant prices have gone beyond the reach of many Zimbabweans in a country that is suffering from economic mismanagement, massive corruption, uncontrolled inflation, stagnant salaries, and widespread poverty.

Salaries of most government workers have been eroded by this runaway inflation with some earning a paltry ZW$24 000 ($104) per month. With the Total Consumption Poverty Line in Zimbabwe having been placed at ZW$8 008.57 ($69.9) per person (pdf) in Dec. 2021, millions find themselves on the brink of poverty.

Businesses in Zimbabwe have facilities to sell their goods and services in both US dollars and local currency but most of them charge exorbitant prices in local currency to encourage buyers to use foreign currency.

Though the charges for purchasing the US dollar are lower at government facilities that were set up in September 2021, than at the parallel market, these bureau de changes have gotten overwhelmed by demand even with a weekly limit per person per week of $50.

“In terms of trying to use the rule of law and legislation to coerce people to accept an undervalued rate of the US dollar will not work. It stifles economic activity underground,” says  Farai Mutambanengwe, a  founder and executive officer of Small and Medium Enterprises Association of Zimbabwe.

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