The last Zimbabwe dollar invoice through my business in January 2009 – are we heading back there?
Last Monday morning we were greeted with the news that the much dreaded Zimbabwe dollar had made a return. Then it got worse, much worse as befitting a Monday morning. Only the “new” dollar could be traded within the country. All other official currencies (US dollar, yen, euro, UK pound) have been restricted to use for import purposes only. Those of us with bank accounts in foreign currency (usually US dollars) may not use them to trade within the country. They can be used to import goods otherwise they can only be used to buy Zimbabwe dollars at the official bank rate which, at the time, was less than half the black market rate.
Some background
Back in February 2009 Zimbabwe officially adopted the US dollar as its currency. It had to – inflation was the second highest on record and the largest Zimbabwe dollar note was one hundred trillion dollars (100,000,000,000,000). Inflation stopped and for seven years we enjoyed relative economic stability by our standards. But the government never stopped its excessive spending and by 2016 they were unable to pay salaries which make up some 80% of the budget so they introduced the bond dollar (supposedly backed by a bond from the Afrexim bank in Egypt which was later shown to be a lie) to cover a general shortfall in small change, and lots were printed. Their value was pegged at 1:1 with the US dollar and for a while the general population accepted this. Then the US dollars became more and more scarce until the banks didn’t have any to give out – the government had stolen most of them. The black market began to pick up as the public realised they’d been conned. It really got into gear when the government told us that our bank accounts, which were still listed on the statement as being US dollars, were actually a new currency called RTGS dollars and were still valued at 1:1 with the US dollar. We were told that if we had hard currency, or were exporting and earned foreign currency, we could open a FCA (foreign currency account) and the money would be kept there for importing, or trading for goods locally that were priced in US dollars. In an import orientated economy such as ours US dollars became more and more valuable so the pressure increased to charge in them. The much derided Finance Minister, Nthuli Ncube, announced that the banks would be able to sell hard currency at the inter-bank rate, i.e. what the government thought the rate should be, which was about half the black market rate. In theory one was able to purchase hard currency at this rate but nobody in their right mind was going to do that except those “with connections” i.e. party fat-cats and their relatives who have been making quick money buying at the low rate and selling at the black market rate. This loop-hole made some people very rich very quickly in the late 2000s.
Inflation was soon above 100% and basic commodities became extortionately expensive for the ordinary folk. Fuel queues became legendarily long (and still are) as filling stations were forced to sell at controlled prices based on the inter-bank exchange rate way below the black market rate. In an unrelated development, power cuts were introduced to compensate for reduced generating capacity from the Lake Kariba hydro scheme – a victim of over development on both the Zambian and Zimbabwean banks of the Zambezi River and the poor rains experienced last season in the catchment area. Compounding this is the 50% reduction of generating capacity at the Hwange thermal power station in the west of the country due to a lack of maintenance and development caused by incompetence and corruption – the power station is built on top of a vast, high quality, coalfield.
Back to the present
The black market exchange rate leaped several points and those outlets selling or marking their products closed for “stocktaking” whilst they figured out what to do. The government directed banks to return money to the Reserve Bank owed to external clients which could not be sent out (as it is in Zimbabwe dollars) thus removing money that could be changed on the black market for hard cash. The black market has since dropped several points as a result. The government has released a propaganda video explaining that having our own currency is a “good thing” even though nobody wants or trusts it. We owe Mozambique and South Africa some US$83 million for imported power and have no way to repay them. The passport office has no money to import the paper and ink to print the backlog of some 240,000 passports. All maize, the staple diet, has to be sold to the government owned Grain Marketing Board (GMB) and there has yet to be an announcement as to how much the local farmers will be paid for their crop which has just been harvested. Will it be equivalent to imported maize? The GMB has been instructed to put 750,000 tonnes of maize to import tender to make up the shortfall from last season’s harvest that was badly affected by poor rains. The President has announced that Zimbabwe has a stockpile of rhino horn and elephant tusks worth US$600 million that he wants to sell, presumably to fund some of the country’s debts, and wants CITES to allow us to do it. They must be horrified.
Will it work?
Attempts to directly control the value of any currency seldom succeed. Most currencies in the world are left to float and find their own value. The memories of the desperate shortages of 2007/8 are still fresh and the distrust of the new currency are deep so acceptance of it is going to be sketchy at best. I have yet to see any announcement of plans to print new notes – if we don’t have money to print new passports how will we have money to print new bank notes? Of course “printing money” these days is much easier than printing notes; a few keystrokes on a computer and suddenly there is a lot more “money” in the fiscus. As cash notes have become scarce so the electronic banking has taken over – mobile phone banking in Zimbabwe is ubiquitous so we have little need for large amounts of cash. However the local population is well aware of this and would prefer money-in-hand, preferably a type they know cannot be fiddled.
There is much more to economic recovery than having one’s own currency. Only a few nations have ever de-dollarized successfully and it requires economic stability to be in place – the Zimbabwean authorities seem to think that this stability will be a consequence of the introduction of our own currency.
The Market Watch website showing the effects of policing
Most people used one of three websites to keep track of the exchange rates over the past several months. One of the more popular ones is shown on the left (a screenshot of my phone on two separate days). I’m not entirely sure how they ascertained the various rates but it’s clear that they have become victims of government pressure as the image on the right only shows the official rate, after the introduction of the Zimbabwe dollar, which is indicated by the line USD/RTGS. OMIR stands for Old Mutual Implied Rate. Old Mutual is a South African banking/insurance group that has a significant presence in Zimbabwe. It is also listed on the London Stock Exchange so it’s possible to get an approximation of the value of the Zimbabwe dollar by comparing what a share is worth in both Zimbabwe and the UK. RTGS stand for Real Time Gross Settlement dollars i.e. electronic transfers. BOND refers to the cash notes that should be equivalent to the RTGS but are not due to short supply. If you find this confusing then you are in the majority.
Also in the news this week has been a report that the Auditor General has noted that Air Zimbabwe (rebranded Zimbabwe Airways) cannot account for the purchase or leasing of three of it’s aircraft; turboprop MA60s. The troubled airline owes US$30 million to foreign creditors and $292 million to various government companies. Getting into a mess of that magnitude must have taken considerable effort. The Auditor General released her report on state enterprises to parliament earlier this week and it makes for depressing reading, not least because very little will come of it.
So will we be heading back to trillion dollar invoices of 2009? It’s difficult to say. In a way I won’t be too upset if we do. It means that we could pay off the bond on our house for a few US dollars – something I missed out on doing back then. Anyway, my computer will be ready (I wrote the software specifically to deal with multiple currencies. The box on the left is an algorithm that converts large numbers to their spoken equivalent so that my staff could explain to customers how much money was owed).
