Good move by Zimbabwe to ban use of foreign currencies that are killing its economy

As part of moves to protect its new interim currency and end years of so-called dollarization, Zimbabwe has banned the use of the U.S. dollar and other foreign transactions in local transactions.

In 2009, Zimbabwe had one of the worst economic times in the country caused by hyperinflation and other failed economic interventions.

This compelled the then administration headed by President Robert Mugabe to suspend the Zimbabwe currency indefinitely and resort to using a variety of international currencies, including the U.S. dollar and South African Rand.

After President Emmerson Mnangagwa took over the helm of affairs in 2017, there were reports the country was looking at reintroducing a new currency to address the economic crisis.

Earlier this year, in a bid to end the years of dollarisation, the country laid the foundations for a new Zimbabwean dollar by introducing an interim currency, the Real Time Gross Settlement dollar (RTGS) or “zollar”, reports Aljazeera.

In February, the country’s central bank announced that the RTGS was to be used alongside other international currencies, including the dollar and the South African Rand.

However, the RTGS, since its introduction, has struggled amid black market speculation that has seen its value slide sharply against the U.S. dollar, the Aljazeera report said.

On Monday, the Zimbabwean government announced that it would abandon the use of foreign currencies, making its interim currency the country’s sole legal tender.

In other words, the legal tender would only be the new “Zimbabwe dollar”, which would be made up of the two local currencies – bond notes and RTGS.

“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,” read the decree,” said a government decree.

“Bond notes and RTGS dollars are at par with the Zimbabwe dollar,” the decree added.

The ban, which has come as a surprise to many, implies that shops and businesses will only be allowed to accept the substitute currency, the RTGS dollars, the BBC reports.

“It means anyone who wants to buy goods or shop or pay for services, within the borders of Zimbabwe, ought to go to a bank or a bureau de change or some other institution to change their foreign currency into domestic currency and to spend that whichever way they wish to spend. That’s what normal countries do,” Finance Minister Mthuli Ncube said.

Ncube explained that ending the use of foreign currencies is part of moves to restore full monetary policy, but critics say the directive will slow the economy.

“I think its ridiculous measure,” Eddie Cross, an economist and founding member of the Movement for Democratic Change, the main opposition party in Zimbabwe, told Aljazeera.

“The exchange rate will run and this is completely out of sync. For heaven’s sake, this is economic sabotage. I hope people will not go on the street tomorrow. This is just catastrophic,” he said.

The currency crisis in Zimbabwe has created three tiers of pricing: one price in US dollar cash, and two far higher prices for paying in bond notes or electronic RTGS, according to a report by the AFP.

The report adds that the black market has thrived since companies buy U.S. dollars to enable them to pay for the goods they need to import. The situation has affected the prices of basic goods such as bread, medicine, and fuel, creating shortages.

This January, businesses and shops remained closed in Harare, Zimbabwe’s capital following protests against a hike in fuel prices.

Mnangagwa assumed power in November 2017 after the long-serving leader, Robert Mugabe, resigned following a military takeover and demonstrations. Mnangagwa’s administration is expected to revive the country’s economy for growth and development but the reverse appears to be the case.

Critics say the president had failed to deliver since coming to office as inflation continues to run high while unemployment is now estimated at over 90 per cent. Businesses are also collapsing and many Zimbabweans do not trust Mnangagwa’s promises.

Meanwhile, the BBC reports that the latest regulation from the central bank does not affect foreign currency accounts, and airfares and customs duty for some items will still be paid in foreign currency.