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New Zim dollar triggers horror memories of hyper-inflation

It comes with a hike in short-term interest rates to 50% to curb inflation of 100%.
Although described as a ‘knee-jerk’ policy introduced in ‘the dead of night’, the exchange rate improvement of 11 Zim dollars to one US dollar this week (from 14 earlier this month) is perhaps an early sign that the measures are working. Picture: Waldo Swiegers, Bloomberg

Zimbabwe banned the use of foreign currencies this week, demanding that businesses accept only local currency.

This has triggered fears of a return to Robert Mugabe-era inflation, which peaked at over a million percent. That was brought to a sudden end in 2013 when the country allowed trading in foreign currencies, and inflation dropped virtually overnight to under 10%. The decision to allow trade in US dollars, South African rands and Botswana pula was widely credited for stabilising the country’s shambolic economy. The collapse was primarily driven by a massive fiscal deficit and the reckless printing of money by the Reserve Bank of Zimbabwe (RBZ).

Read: Zimbabwe inflation hits 50% as Zanu-PF big-wigs milk crisis

Yesterday the so-called Real Time Gross Settlement (RTGS) dollar strengthened to 11 to the US dollar from a low of 14 earlier in the week, according to some reports. Economist Eddie Cross, one of the architects of the new financial regulations and a former Movement for Democratic Change (MDC) parliamentarian, says the new measures are aimed at reducing the RTGS dollar to around four to the US dollar. That should also bring inflation down from its current level of about 100%.

Read: Zimbabwe declares interim RTGS dollar its sole legal currency

It was this spiralling inflation, and the inability of ordinary Zimbabweans to survive in a country where hard currency became the preferred legal tender, that prompted the sudden move. Most Zimbabweans struggled to lay their hands on US dollars and rands.

Several measures were announced: the formation of a monetary policy committee similar to that of the SA Reserve Bank to make decisions on interest rates; an increase in short-term lending rates from 17% to 50%; and an increase in forex for trade on the inter-bank market.

Curbing forex opportunists

One of the purposes of these measures is to reduce the massive arbitrage opportunities available to those with access to foreign currency. Because the price of fuel is controlled at Z$3.50 a litre by the state, more than 2 000 heavy duty fuel trucks enter Zimbabwe every day to transit the country to states to the north and east, using the low fuel prices to fill their tanks.

It is reckoned that 2-3 million litres of diesel is being shipped out of Zimbabwe each day because of this pricing gap.

Fuel can be purchased in Zimbabwe for the equivalent of US$0.20 a litre and sold in Botswana for the equivalent of US$1.30 a litre – an easy path to quick riches for thousands of truck owners.

Read: Back to 2008 in Zimbabwe as currency that wrecked lives returns

“Many people were borrowing local currency at 17% so they could engage in these arbitrage opportunities, but this had the effect of driving up prices for everybody else,” says Cross. “By hiking short-term interest rates to 50%, this makes it far less attractive for arbitrage. This should result in lower inflation across the board over the next few months. I think these measures are a step in the right direction, and we should see the parallel market rates for the RTGS dollar continue to strengthen.”

In February this year finance minister Mthuli Ncube instructed the RBZ to set up an inter-bank market for forex. The reserve bank resisted the instruction until President Emmerson Mnangagwa stepped in and insisted that the bank adhere to the Short Term Stabilisation Programme that had been adopted in 2018.

Tax threshold may be raised to offset the effects

The resurgence of inflation to 100% – though far less frightening than had been the case prior to 2008 – makes it increasingly difficult for families to survive. One of the measures being considered is to raise the threshold for paying income tax from RTGS$500 to RTGS$2 000, which would compensate for the effects of inflation.

Despite the rise in inflation in recent months, Zimbabwe has accumulated forex reserves of about US$1 billion and a fiscal surplus of US$2 billion.

Companies are required to remit 55% of forex earnings to the RBZ, amounting to about US$3 billion a year. Half of these retentions will now be made available on the inter-bank market as part of the package of stabilisation measures.

The RTGS was de-linked from the US dollar in September 2018, after which the exchange rate fell from RTGS$4:US$1 to 14:1 earlier this month. The improvement this week to 11:1 is perhaps an early sign that the measures are working.

‘A plan to hoover up forex’ from business

Other Zimbabweans are not so convinced. James Chidakwa, an opposition MDC member of parliament, says there are suspicions that this is a plan by the RBZ to hoover up all the forex from businesses.

“It will all end in tears for the rest of the people,” he says. “Not so long ago Ncube was asked what we should do about traders who ask for US dollars. His response was that it was perfectly legal for them to do so because we’re in a multi-currency economy.

“We have a two-headed beast running the country. How do businesses price their goods and services let alone replenish their goods?

“Another round of price madness has effectively been promoted. As MPs we are sandbagged with these people [those who run the country’s finances]. Ncube does not know what he is doing. This also reflects badly on the president’s judgement, by hiring someone who failed to run a bank [Ncube was chief economist and vice president of the African Development Bank] to turn around a failed state’s economy.”

The MDC yesterday said the new measures amount to the reintroduction of the dreaded Zim dollar, without addressing the economic fundamentals to support the local currency.

‘Nation ambushed’

“Despite government’s promise that it would introduce a new Zimbabwe currency in the next nine months while it addresses the fundamentals, the regime today just ambushed the nation and reintroduced the Zimbabwean dollar as the only legal tender in local transactions,” said Luke Tamborinyoka, MDC deputy national spokesperson.

“This means that the multi-currency regime, which provided some modicum of decency and predictability, has been thrown out of the window in favour of the volatile local currency that is not backed by adequate gold and foreign currency reserves.”

The trust and confidence that are vital to public willingness to transact in a new currency are not present.

“It remains to be seen how the market will respond to the madness, but the knee-jerk monetary policy introduced in the dead of the night is reminiscent of the rushed decisions of this regime,” said Tamborinyoka.

“The fuel price increases announced by Mnangagwa himself in the dead of night and that caused a furore in the country’s economy are a case in point.”



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Z$ 100,000,000,000,000 is the largest note ever printed in the world. Sounds like a re-peat

still just worth (not even?) the paper it is printed on. Africans will stand with millions in their hands, not be able to use it because there is nothing to spend it on.

A smart person learns from their mistakes. A really smart person learns from the mistakes of others. Look and learn South Africans and prepare accordingly.


On a trip through Zim I swapped a tee shirt for wads of brand new 100 trillion and 20 billion/trillion notes. Plan was to use it for poker money. “ I will see your 500 trillion and raise you 200 trillion…”

Still have them, but interestingly, they are now valuable. If you look on ebay I think brand new 100 trillions were selling for 1000 runts – each!!! That T shirt was the best trade of my life it seems. I better sell my stacks on EBay before the next run of famous zim notes takes hold.

Dunno. I’m still voting ZANU PF

Guys, this is how the ANC/EFF will fulfill their promises to the people! It is true indeed. The socialist parties will, in fact, turn “the people” into millionaires, maybe even billionaires. This is not only possible, but it actually is highly probable. This is what “economic freedom” entails under national socialist rule. Never an improvement in the livings standards, but always a devaluation of the value of the currency.

The individuals who benefit most under these kinds of economic policies are those who are not exposed to it. The locals with offshore investments in hard currency and the criminal leaders with the accounts in Dubai. The ANC policies will make labor exponentially cheaper for locals who invested offshore. A devaluation of the Rand implies that the same dollar buys more labor. This is how a minimum wage of R20/ hour crashes to R2/ hour in purchasing parity.

The ANC is the enemy of the poor working class and the benefactor of the wealthy. Once your assets are offshore, you will also become an ANC supporter….☺

I think its a tremendous idea, the only reason it didn’t work before was because the colonialists sabotaged it. When we decolonise the management of our FIAT currency properly, it will be a resounding success!!

Pamplona : this decolonise thing sounds extremely painful – do you at least reconnect your small intestine to the exit?

Beauty LOL!!

Good going Zimbabwe.. a few nations have successfully dollarized their economy,, we welcome the ZW$ with open arms. We buy in from the citizenry, it will certainly work. Please rein on fiscal indiscipline.

You are probably at the bank now converting all your money to Zim dollars.

Careful now, you’ll need both arms just to carry your pocket money, fool.

I didn’t know Zanu PF had paid trolls. Guess we know where the dollars went then.

End of comments.




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