Zimbabwe’s Minister of Finance Mthuli Ncube banned the multi-currency regime and renamed the RTGS currency to Zimbabwe dollar effective today, 24 June 2019.
PovoNews.com previously reported that Zimbabwe’s Reserve Bank Governor John Mangudya introduced the “RTGS Dollar” during his monetary policy statement on February 20.
Hyperinflation forced Mugabe’s government to dollarise the economy when acting Finance Minister, Patrick Chinamasa made foreign currency legal tender in Zimbabwe on 29 January 2009.
Is Zimbabwe ready for a fully fledged local currency? Are the macro-economic fundamentals in place to sustain the return of the Zimbabwe dollar?
Statutory Instrument 142 of 2019 reads
Subject to section 3, with effect from the 24th June, 2019, the British pound, United States dollar, South African rand, Botswana pula and any other foreign currency whatsoever shall no longer be legal tender alongside the Zimbabwe dollar in any transactions in Zimbabwe.
On the effect of the new Zimbabwe dollar on foreign currency accounts known as Nostro Accounts the Statutory Instrument reads
The opening or operation of foreign currency designated accounts, otherwise known as “Nostro FCA accounts”, which shall continue to be designated in the foreign currencies with which they are opened and in which they are operated, nor shall section 2 affect the making of foreign payments from such accounts;
The government will, however, continue to receive customs duty in foreign currency as will international airline services for their tickets.
The requirement to pay in any of the foreign currencies referred to in section 2(1) duties of customs in terms of the Customs and Excise Act [Chapter 23:02] that are payable on the importation of goods specified under that Act to be luxury goods, or, in respect of such goods, to pay any import or value-added tax in any of the foreign currencies referred to in section 2(1) as required by or under the Value Added Tax Act [Chapter 23:12 ].
Notwithstanding section 2 it is permissible to tender any of the foreign currencies referred to in section 2(1) in payment for international airline services.
History repeating itself in Zimbabwe
With official inflation figures reaching 100% in May (unofficial estimates 300%) it seems the headwinds are pointing to a repeat of the hyper-inflation of yesteryears but this time under President Mnangagwa’s so-called “New dispensation.”
The proverbial problem of Zimbabwe’s government has been to treat only the symptoms at the root of the economic problems the country is facing.
Under Gideon Gono as the RBZ Governor, Zimbabwe introduced a string of futile measures such as traveller’s cheques, bearer cheques, Bacossi, slashing zeros, price controls e.t.c but never addressing the core problems.
It seems Finance Minister Ncube and RBZ Governor Mangudya are happy to follow in Gono’s footsteps by introducing bond notes, 1:1 parity with the US dollar, the RTGS Dollar, the surplus gospel and now the Zimbabwe dollar.
A middle ground solution to Zimbabwe’s problems
Many have argued Zimbabwe’s problems are political, not surprisingly the relative economic stability and modest growth of the Government of National Unity (GNU) days seem to point in that direction.
Main opposition leader Nelson Chamisa who received over 2 million votes (44.3%) but alleges President Mnangagwa rigged the 2018 election is pushing for a GNU of sorts with his calls for a National Transition Authority (NTA).
Prospects for a GNU or NTA are slim since Mnangagwa is using the veneer of dialogue with 18 presidential candidates who got less than 4% of the vote as his preferred route to engagement and fixing the politics.
A middle ground solution is possible that will fix Zimbabwe’s politic system and consequently the economy without a GNU or NTA and it is called bi-partisan political reforms.
The ruling party Zanu PF despite its majority in Zimbabwe’s parliament should engage the MDC (main opposition) and come up with a mutually agreed reform agenda to move the country forward.
Effects of bi-partisan reforms in Zimbabwe
In less than 6 months both Zanu PF and the MDC can craft legislation to align all of Zimbabwe’s laws to the 2013 constitution itself a product of bi-partisan engagement.
The local and international confidence gained from bi-partisan reforms can be the basis of creating the conditions required to introduce a local currency.
A domestic currency will need at least 6 months import cover, single-digit inflation, a budget deficit lower than 5%, a trade surplus and high industry capacity utilization.