Just how much longer can the ZWL survive?
The RBZ governor claims the country is not dollarizing. This claim is rather ingenuous however.
“The country is not re-dollarizing. We need to find a home for our currency” – John Mangudya.
It seems that`s government`s story, and they are sticking to it!
This is rather ingenuous however, as the RBZ’s decision to allow the USD to be used for transactions alongside the ZWL back in July 2020, effectively opened Pandora’s box. The private sector has been using the USD since July 2020, while the informal sector has been using it for way much longer.
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A troubling yet unsurprising trend
Drive around the highways and by-ways of Harare - or any other urban center - if we still have any, and you will see the same thing. The country’s urban population, with their ex-Japanese second-hand vehicles, trunks open, selling anything from sugar, vegetables, cooking oil and body lotion.
The reason why these products find their way to the streets is manifestly clear. Companies seeking foreign currency to sustain operations divert these to the informal sector which trades almost exclusively in foreign currency.
Why supply to the formal market, be paid in local currency and be at the mercy of the suits at the RBZ, deciding how much foreign currency you get, and when?
While still on this, there’s an undercurrent of duplicitousness in that the companies getting the most foreign currency allocations are cooking oil manufacturers.
I mean just how much frying are Zimbabweans doing in their houses? Yet one of the most commonly traded products on the informal market is cooking oil. This is a conversation for another day.
A nation of traders
To my earlier point then, on the country's ‘urban elite’ selling wares in their cars. What this shows is that, at the very core nothing comes easily to Zimbabweans as trade - buying and selling.
Not manufacturing, not mining, not farming. Trading!
We are a nation of traders. And there isn’t anything inherently bad in being traders by the way.
There is one little problem though. Most of what is traded between ourselves is imported. And these imports require foreign currency. Add on to this that one of the major individual expense items – rentals – are now denominated in foreign currency. This then answers the central bank governor’s question of why Zimbabweans like to hold onto the US dollar. Again, this also shows the difficulty of Mr Mangudya`s task of finding a home for the local currency.
Government leading the way
But everything rises and falls on leadership you see. If government itself has repeatedly shown disdain for its own currency, as it has done, then things can only go one way. Government demands taxes in USD, finding any and every loophole to extract payments from the population in foreign currency.
The latest being the taxation of mixed ZWL and USD income as if it were all earned in USD. This recent proclamation by Government that salaries paid in both USD and ZWL are now taxable entirely in USD is a further sign of dollarization.
Regardless of how much government still claims otherwise, this is a big and clear signal that the ZWL is largely undesirable. Still, the authorities insist that the market is not dollarizing.
What then shall we make of all this?
If a nation has tasted dollarization, it is incredibly difficult to go back. The de-dollarization project - whatever this actually means - is dead in the water.
Government is reportedly paying about 45% of contract value in USD to its contractors. This in itself is a tacit recognition by government of the US dollar as the functional currency.
So, it would seem then that we are now back at where we started. What with pensioners and civil service workers now receiving part of their salaries in foreign currency.
Dollarization is now well and truly here!
There will be casualties to this USD ‘rebirth’ of course:
Telecoms Companies: With an ever-growing subscriber base, telco’s need to continuously invest in capacity. Now with highly regulated tariffs pegged in local currency, this is not happening.
And with growing reports of equipment theft and vandalism (itself a possible reflection of relatively lower salaries and discontent in the sector), these spares will need replacing. This at a time when telco’s are generating little to no foreign currency.
Expect the quality of your browsing experience to continue deteriorating.
Banks and Banking: This sector is contending with twin forces of inflation, and the dollarization wave sweeping through the country. The devaluation of the local currency, which is inflationary, has comprehensively decimated banking balance sheets, greatly constraining their ability to lend.
On the other hand, deep levels of distrust see people opting for brick and mortar as a better saving and investment, which in part explains the boom in construction.
Shareholders will have to dig deep in their pockets to shore up capital in hard currency to stimulate meaningful activity.
Reserve Bank of Zimbabwe: As the US dollar becomes greatly entrenched, against a backdrop of the public`s deep-seated mistrust of the financial system, the central bank`s central role and significance will likely wane.
The bank`s lender of last resort function will be severely diminished, reducing it to merely a perfunctory oversight role only, without much policy sway.
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