The fast depreciation of the Zimbabwe dollar against other currencies has left the government with no choice but to bring back the United States dollar through the back door despite a ‘premature’ ban of the same last year, latest developments in the troubled economy have shown.
The government in June last year, overnight, banned the use foreign currency, US dollar included, for all domestic transactions while instituting the inflation-ravaged Zimbabwe dollar as the sole legal tender for local payments.
That was despite the multicurrency regime having been in place for 10 years since 2009 following the ditching of the local currency.
Since then, the local currency has been losing value almost on a daily basis with prices of basic commodities also shooting through the roof, leaving civil servants with no choice but to demand salaries in the greenback, putting the cash-strapped government in a corner.
Despite rejecting calls for the country to return to the usage of more stable foreign currencies, the government in March made a U-turn and allowed citizens with free funds to transact in forex, a move the authorities said was meant to cushion the general public from the effects of the COVID-19 lockdown.
The Reserve Bank of Zimbabwe (RBZ) fixed the interbank exchange rate between the US dollar and Zimbabwe dollar at 1:25, far below parallel market rates which now range between ZWL$70 and ZWL80.
This week, in a move that could be signalling that the government has accepted that the local currency cannot take the nation far, RBZ announced that forex auctions will begin next week, while the Ministry of Finance and Economic Development announced US$75 COVID-19 allowances for civil servants.
Economist at the National University of Science and Technology’s Banking and Investment Promotion department, Stevenson Dlamini, said there was no doubt Zimbabwe was returning to partial dollarisation, with the government having learnt that totally banning the US dollar was impossible.
“I think we are going back to partial dollarisation,” Dlamini told CITE.
“I don’t see it being reversed because they (government) learnt lessons from the instant reversal. So from what they have learnt I think they have realised that totally banning is impossible because we are still a consumer economy.”
He added: “We are relying on imports. Until we can boost production, we are likely to see that (use of forex) in the next two years prevailing.”
The economist said the conclusion was that the government had temporarily lifted the ban on the use of foreign currency.
“Whether it is a temporary reprieve or permanent, we are not sure,” he said.
“Our government is known for a very high degree of policy inconsistency. What could account for reprieve or relaxation of foreign currency regulation is because they know borders are closed. It is easy to harness that money within the closed economy than it is when the economy is open.”
Dlamini added: “At least the understanding now is, given the lockdown, it is easy to track the money.”