Govt abolishes the multi-currency regime

Harare – The Reserve Bank of Zimbabwe has with effect from the 24th of June, 2019 abandoned the multi-currency regime which was adopted 10 years ago in January 2009 following a period of hyperinflation.

Effectively, the Zimbabwe dollar which constitutes bond notes and coins, and the electronic balances-RTGS, is now the sole currency for legal tender purposes.

According to a circular by RBZ, this policy shift (statutory instrument) was issued by the Finance Minister Professor Mthuli Ncube  in terms of section 64 as read with section 44A of the RBZ Act {Chapter 22:15}.

“Subject to section 3, with effect from the 24th June, 2019, 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,” the RBZ statement reads in part.

This move comes as prices of basic goods and commodities have spiralled to greater heights further eroding worker’s salaries.

Meanwhile the RTGS$ dollar value continued to depreciate on both the official interbank market and the parallel exchange market trading at a high of 1:6.5 and 1:11 on the respective exchange markets.

Origins of Zimbabwe’s multicurrency regime as mentioned earlier dates back to 2009 when the Zimbabwe dollar was demonetised due to hyperinflation which had led to the loss of value and confidence in local currency.

On a good note, the introduction of the multicurrency system in February 2009 had a dramatic impact, most immediately by ending hyperinflation almost overnight. Buying power or effective demand by economic agents was compressed as the Z$ accounts were frozen and economic agents started to accumulate US$ balances from zero as there was no conversion of Z$ accounts to US$ accounts.

A study contacted by Zimbabwe Economic Policy Analysis and Research Unit (ZEPARU) in 2013 showed that the trend in the inflation levels in Zimbabwe, South Africa and the United States of America since December 2009 shows that year on year inflation for Zimbabwe converged towards the levels of inflation prevailing in the United States and South Africa, however, developments in the inflation trend from April 2011 mirrored those in SA economy mediated by changes in the Rand-US dollar exchange rate.

Although the multicurrency provided some stability, it also posed a number of challenges.

Among these include the loss of monetary and exchange rate policy autonomy, which may affect the country’s ability to respond to economic shocks and the lack of lender of last resort (LoLR) facility, whereby the central bank cannot print money to provide liquidity to a bank or banks in distress; hence the ability to respond to financial crises may be restricted.

Under the multicurrency regime dominated by the USD, Zimbabwe faced shortages of small change (coins) which posed difficulties for retailers. Government resorted to the introduction of the bond coins and notes which was initially intended to be an incentive to the USD.

To date the government has implemented various monetary policy shifts, the most recent being the subsequent introduction of the RTGS$ in February 2019-interexchangeably referred to as the Zimbabwe dollar.

According to Analysts at Equity Axis, all things being equal the scrapping of the MCR should boosts the value of the local currency as demand is likely to increase for the purposes of transactions.

Equity Axis News

Raynold M

Raynold Mhotseka is a Journalism and Media Studies student at the University of Zimbabwe. He serves as a news writer at financial research firm, Equity Axis where he is currently on attachment.

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