A government decree has been issued to outlaw the use of foreign currencies in Zimbabwe. Zimbabweans can now only purchase goods and services using the Zimbabwean dollar, which has been made the sole legal tender.
According to the business news outlet Quartz Africa, the Zimbabwe dollar comprises of bond notes, coins, electronic balances and the RTGS dollar. Under the new law, the RTGS dollar is on par with the Zimbabwean unit. According to the publication, the new policy is in line with Finance Minister Mthuli Ncube’s long-term plan to create a new currency and address concerns that the country’s business community has quietly been leading an unofficial process to re-dollarise the economy yet again.
It further adds that, with the new currency, the central bank, the Reserve Bank of Zimbabwe, will also be able to influence monetary policy, such as interest rates direction, the exchange rate, money supply and determining the interventions needed to stimulate or cool the economy.
The BBC reports that the government has said it wants the price of the RTGS dollar to be determined by the market. Although it initially suggested that it should trade at 2.5 RTGS dollars to the US dollar, this was significantly less than the black market rate for the bond note, which was selling at more than 3.5 to the dollar.
We see this interbank rate as completely meaningless until the Government allows for transparency on volumes etc.. As for the general public the Parallel market is still flourishing #MarketWatchZW https://t.co/ABxZxvyEgy
— Market Watch Zimbabwe (@MarketWatchZW) February 26, 2019
Ashok Chakravarti, an economist and lecturer at the University of Zimbabwe, told Bloomberg that the climate surrounding the change is rightfully pessimistic. “It’s very unfortunate that this is the second time in 10 years that people have lost the value of their savings. In 2009 we all went down to zero, including me.”
“They have, through the back door, reintroduced the Zimbabwe dollar. It is theft because people had regrouped and rebuilt their lives from zero, based on the US dollar.” He added fervently, “It’s a Ponzi economy.”
Zimbabwe’s currency timeline
1999: World Bank and IMF suspend aid to Zimbabwe over differences with the government regarding policies.
2000: Bloomberg states that the origins of Zimbabwe’s currency crisis stretch back to a violent land reform programme initiated by Mugabe in 2000, which slashed export income and devastated government finances. In response, the then Reserve Bank of Zimbabwe Governor Gideon Gono increased the printing of Zimbabwe dollars exponentially to pay government workers, stoking inflation and eventually making the currency valueless.
2001: Zimbabwe suffers food shortages that critics of the government blame on farm seizures but Mugabe blames on drought. Several Western governments quietly withdraw economic aid because of rights abuses by the government and Mugabe’s land policy.
2002: A state of emergency is declared as the collapse of commercial agriculture and poor weather contribute to serious food shortages, leaving about half of Zimbabwe’s population in need of emergency food aid. UN agencies, Britain and the US help fund food aid.
2006: Zimbabwe’s annual inflation rises above 1 000 percent in April, dramatically escalating the severity of its economic crisis. Redenominated notes are issued in August so that 1 000 old Zimbabwean dollars becomes one new dollar.
2007: The annual inflation rate, already the highest in the world, races to 1 729.9 percent in February, from 1 593.6 percent the previous month. On a monthly basis, however, inflation slowed to 37.8 percent from January’s 45.4 percent.
2008: Authorities abandoned the Zimbabwe dollar after inflation reached an estimated 500 billion percent, according to the International Monetary Fund. This unfortunately made savings worthless and led to the abolition of the local currency in favour of the dollar the following year.
2016: Former President Robert Mugabe’s government introduced securities, known as bond notes, that it insisted traded at par with the dollar.
2018: The government separated cash from electronic deposits in banks without reserves to back bond notes, causing the black-market rate to plunge.