Feature: Mixed feelings over Zimbabwe's new policy banning use of foreign currencies as legal tender

Source: Xinhua| 2019-07-05 20:50:57|Editor: xuxin
Video PlayerClose

by Tichaona Chifamba

HARARE, July 5 (Xinhua) -- There have been mixed feelings over the imposition of a law on June 24 which banned the use of foreign currencies as legal tender in Zimbabwe and the re-introduction of the Zimbabwe dollar (now RTGS dollar).

Some locals fear that some basic goods will soon disappear from the shelves of retail shops, while others have welcomed the move saying that it will contain runaway prices caused by continued use of the United States dollar as a parallel unit of trade.

The country had abandoned the Zimbabwe dollar in 2009 amid hyper-inflation, and the currency was officially demonetized in 2015.

Statutory Instrument 142 (SI 142) of 2019, otherwise known as the Reserve Bank of Zimbabwe (Legal Tender) Regulations, 2019, rattled the economy in the past week to such an extent that the U.S. dollar parallel market fell from a high of 1:16 RTGS dollars to as low as 1:7 RTGS dollars, prompting panicky citizens to quickly dispose of their greenbacks at low rates.

Individuals earning their salaries in foreign currency can still withdraw it but must first change it into local currency before making any transactions.

The government has since warned that it is now a criminal offence for storekeepers to price their goods in U.S. dollars or any other foreign currency, and for anyone to use foreign currency rather than Zimbabwe dollars in any transaction carried out in the country.

Apart from the U.S. dollar, other currencies that were banned were British Pound, Euro, Australian dollar, Chinese Yuan, Japanese Yen, Indian Rupee, South African Rand and the Botswana Pula.

One of the reasons why the government decided to impose the foreign currency ban was that some retailers and suppliers had begun pegging their prices mainly in U.S. dollars yet the majority of Zimbabweans earn their salaries in local currency.

The pegging of prices in U.S. dollars had also resulted in prices of basic commodities rising every week, which had led to discontent among lowly paid government workers and many others in the private sector.

Prices of some commodities -- except bread, meat (beef, pork and chicken) and milk - have been falling since the imposition of the new policy and also amid fears of reprisal following a stern warning from President Emmerson Mnangagwa that those who continued to increase prices would be punished.

Some imported goods such as potato crisps have since disappeared from the shelves as they can no longer be replaced using local currency.

Leading retail chain OK Zimbabwe Limited welcomed the new law saying that it would stabilize prices which had continued to rise as they chased the (parallel) exchange rate movement.

"We welcome the new SI 142, which we believe will stabilize prices and allow us to deliver the good prices and value you have always expected and enjoyed from us.

"We have always received good support from our supplier partners. Accordingly, we have engaged them and some have started to moderate prices in response to SI 142," the retail chain said in a statement Friday.

A manager with another leading retail chain said that suppliers had promised to start reviewing their prices downwards in the coming week after disposing of goods they had acquired using the previous parallel rate regime.

Other retailers under the banner of the Confederation of Zimbabwe Retailers (CZR) have welcomed the government pronouncement, adding that they also support measures taken by the Reserve Bank of Zimbabwe (RBZ) to stabilize the interbank foreign currency market.

"The pricing distortions arising from the inflated and stage managed parallel market had left most Zimbabweans reeling and on the brink of total poverty as incomes ,wages and salaries were eroded daily by the fictitious and fallacious black market exchange rate.

"The dilemma was exacerbated by the demand for U.S. dollars for domestic transactions even for goods ordinarily manufactured in Zimbabwe yet about 96 percent of the workforce earn their wages and salaries in local currency. Many had to offload the RTGS dollars or bond notes as soon as they laid their hands on it," said CZR president Denford Mutashu in a statement.

Opposition party MDC secretary for policy and research Tapiwa Mashakada however said the banning of foreign currency as legal tender was a panic move by the government.

"To have domestic currency, there must be productivity and re-industrialization; at least six months forex reserves; there must be confidence; you must be a net exporter; (and) you must give notice to public," he said.

He added that he foresaw the market rejecting the Zimbabwe dollar (RTGS dollar) and continuing to use the U.S. dollar.

Incidentally, the use of the U.S. dollar is continuing unabated in the informal sector, while some customers also opt to use the U.S. dollar as opposed to local currency.

Mutashu warned against the uncontrolled printing of money as had happened during the hyper-inflationary period.

"The CZR further urges the RBZ to exercise restraint and prudence with the printing machine to safeguard the value of the Zimbabwe dollar while the Ministry of Finance should desist from inconsistent policy pronouncements that have dented trust and confidence in the past. Further measures should be a product of continued consultations and engagement while the inclusive approach is encouraged forthwith," he said.

He said the introduction of the Zimbabwe dollar would further improve competitiveness and efforts should be made to ensure that the importation of essential raw materials, capital goods, drugs and medicines, fuel and energy, is not impeded by the policy changeover.

Ordinary people are still to ascertain the long term impact of the new policy.

Hastings Muchirahondo, an officer work in a company in Harare said he would welcome the move as long as prices remained steady and basic goods were available.

"There is no point making a policy under which we will all go hungry because there are no goods in the shelves. Not all of us can afford to travel across the borders to South Africa, Botswana and Mozambique to buy basic goods as was the case in 2008 up to 2009," he said.

Another Harare resident, Tonderai Masango, said it was time a new currency was introduced "to do away with the U.S. dollar" which was causing suffering among ordinary people as they were being forced to buy it before making purchases in some stores.