Zimbabwe Absurdity

The senior foreman said the customer wanted to pay in Zimbabwe dollars, cash, were we going to accept them? We didn’t have much of a choice as it is legal tender so I said yes and asked how much it was. 67,000 he replied. I groaned knowing they would be in small denominations. The biggest, $50, is worth all of US2.2c so I knew there would be quite a few bundles but the majority were $20 notes. We filled a medium-sized box.

Quite a few were in bank-sealed plastic bags of 500 notes which were called “bricks” back in the hyper inflation days of 2008. We didn’t bother counting them then and didn’t bother now. Back in those days the government attempted to get around the problem by printing ever larger denomination notes (an example is in the picture). Our inflation now is not quite that bad but anyway, local currency notes have largely been superseded by electronic money. It’s very easy to add zeros onto electronic money.

The other currency in Zimbabwe that is also legal tender is the US dollar. Having nothing to do with the government it is by far the most preferred. Although the government tries to set the exchange rate and can prosecute those not using it there is an easy work-around. It goes like this: the official rate is 1,097 Zimbabwe dollars to US$1 and with a few exceptions, fuel being one of them, businesses have to quote their prices in the local currency. On the unofficial market the rate is currently around 2,200 to one US dollar depending on to whom one is talking. Businesses price their goods in the Zimbabwe dollar and then offer a fat discount if you want to pay in US dollars – this effectively brings the official rate up to the unofficial one and it’s completely legal. Many businesses don’t bother with the official rate and just quote the unofficial one. My business is one of them and so far there hasn’t been a comeback.

There is a sense on around town that the unofficial rate is running again and people are offloading their Zimbabwe dollars. I sent the driver into town the day following the above deposit to get rid of the cash. In reality it was about US$30 so didn’t go far but I managed to find a fertilizer company accepting them and topped up with a bit of electronic money in the form of a debit card we managed to get a meaningful amount of agricultural chemicals bought.

The government is of course also looking for a dependable currency and has hit on tax as the easiest way to get in US dollars. All US$ cash deposits are levied at 20% and the government reimburses the amount in Zimbabwe dollars – at the official rate! This means that in reality the recipient can be losing 10% or more of the deposit in real terms. Exporters are levied 40% of the amount remitted to their forex accounts. It gets better; 3% of all USD cash withdrawals from a bank are taxed. While one can still pay car licence fees and other government levies in the local currency the sense is that it cannot last.

The local Reserve Bank has an idea to shore up the local currency; digital tokens backed by gold. It won’t work – the population’s trust in the government has long since evaporated. There is nothing new about digital currency in Zimbabwe but my staff for one will only be interested in the greenback.