Zimbabwe shuts out foreign currency

Zimbabwe has had a bumpy time with its currency over the years. Now things suddenly appear simpler on paper, but in reality, they are much more complicated. On Monday, the country's central bank announced that, effective immediately, foreign currencies would no longer be legal tender. No more British pound, US dollar, South African rand or Botswanan pula. Not only that, but their use within the country's border will be a punishable offense.

According to the government in Harare, from now on only two things will be accepted in the southern Africa country of 16 million people: so-called bond notes and coins, and the Real Time Gross Settlement dollars (RTGS), which are only available electronically.

Though Zimbabwe's president, Emmerson Mnangagwa, has repeatedly said he wants to reintroduce a new national currency, the end to the country's multicurrency system came quite suddenly.

It was only in 2009 that Zimbabwe's local dollar was officially replaced by the US dollar to bring much needed stability to the economy. For most of the last decade the dollar was indeed a stabilizing hand, but recently the country was running out of the greenbacks as more was being spent on imports. Inflation was creeping up.

Good for business?

The latest announcement came as official inflation is hovering around 100%. Though well down from the unimaginable hyperinflation reached a decade ago that led to the downfall of the country's domestic currency, it's still high enough to cause pain to ordinary workers and businesses across the country.

Not surprisingly, many on the ground were caught off guard and are skeptical, not least because of the country's financial history. Christopher Mugaga, chief executive officer of the Zimbabwe National Chamber of Commerce, thinks these sudden changes are bad for businesses already suffering from uncertainty and will not solve the currency problem or put a stop to a parallel economy of different black market prices.

"The negative impact of such a move might include a shortage of commodities in the shops. Business people might not necessarily want to sell in RTGS openly," which would only lead to a growth in the black market. Inflation cannot be simply ignored or taken away, he added.

Where's the 'zollars'?

The clumsily named RTGS was originally meant as an interim stopgap alongside the American dollar. It was first implemented in 2016 near the end of Robert Mugabe's 37-year reign when the government started to pay with the electronic currency because of a lack of US dollars.

At the time, the central bank claimed that RTGSs were equal to the US dollar, but bank withdrawals were only given in bond notes, a type of paper currency, and not in actual dollars. The exchange rate on the street was not one-to-one, as many Zimbabweans looking for bucks on the black market found out.

With the economy lagging, the government finally devalued the currency by 60% in February. Since then it has fallen further. Blocking the use of foreign currency is a last-ditch effort to get a handle on the black market and stabilize the economy.

Yet this step just adds confusion to an already jumbled economy. Many people are paid in the Zimbabwean RTGS, but prices are still quoted in US dollars, especially for all imports. Some food, fuel and other imported goods are in short supply at the moment.

Taking back control

Jane Kawanza, who runs information and technology shops in Harare that are reliant on imports, expressed disappointment at the government's decision. "Our local currency is not stable — that means prices have to be marked up on a daily basis. And that's not good for business."

"If you have many branches, if you are a big business, it means you have to put high margins on your goods to avoid increasing prices on a daily basis. That is a huge disadvantage to the consumers because goods are going to be overpriced," she added.

For the moment, customers can pay with the official bond notes and coins or via mobile payment systems. These payments fall within the official government system and exchange rates. Nonetheless, many on the street are still buying and selling in US dollars or South African rands — and getting better deals — although it is no longer allowed. These two competing systems punish big chain stores that are afraid of going against government regulations and let smaller merchants deal under the radar. So far Harare has not gone after this parallel economy.

In any case, the government must prove that its new currency is trustworthy. This can only be done by getting inflation under control and restoring price stability. But going by the country's track record, it will be an uphill battle to convince the people of Zimbabwe to let go of the mighty US dollar and again reach for something more homemade.