US$ use allowed as corona bites… while measure is temporary, long-term fate of Zim dollar could be threatened

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©️ IN A surprise announcement last night, the government said the public is now free to use foreign currency openly to pay for goods and services in the country as part of combating the spread of coronavirus (Covid-19), the Daily News reports.

At the same time, authorities also suspended Finance minister Mthuli Ncube’s recently introduced managed floating exchange rate system, in a bid to provide greater certainty in the pricing of goods and services in the country.

While these new policy decisions, including the re-introduction of the multiple currency system are only for the duration of the coronavirus crisis — and also not meant to do away with the “little-loved” Zimbabwe dollar — experts said this potentially put the long-term fate of the local currency in jeopardy.

“This could spell trouble for the Zim dollar as these measures, albeit temporary, will make it even harder to stem the current re-dollarisation tide,” a prominent Harare businessman said.

But the governor of the Reserve Bank of Zimbabwe (RBZ), John Mangudya, said the surprise policy change was an additional measure meant to mitigate the impact of the lethal coronavirus, that has killed thousands and wreaked havoc around the world.

“Pursuant to His Excellency, the President’s 23 March 2020 address to the nation on additional measures to mitigate the devastating impact of Covid-19 on the Zimbabwean society and the economy, government though the Bank, would like to advise the public that it is making it easier for the transacting public to conduct business during this difficult period by making available an option to use free funds to pay for goods and services chargeable in the local currency.

“This intervention takes into account the country’s limited access to foreign finance, which is adversely affecting the country’s balance of payments position.

“The dispensation to use free funds will not only make payments for goods and services easier, but will also promote social distancing, as banks will be able to provide digital financial services to their customers, that include producers of gold, tobacco and cotton, and recipients of diaspora remittances,” Mangudya said.

“Related to the above measures, government, through the Bank, has also suspended the managed floating exchange rate system to provide for greater certainty in the pricing of goods and services in the economy.

“In its place, the Bank has, with immediate effect, adopted a fixed exchange rate system at the current inter-bank level of Z$25 to the US dollar.

“This measure will be reviewed when markets stabilise from the effects of Covid-19,” Mangudya added.

“The Bank also agreed with the banking sector to suspend increases in charges related to the provision of all electronic payments during these trying times.

“Similarly, the Bank is also engaging the mobile network providers to ensure that their mobile banking charges are reduced in order to promote electronic banking, which is in line with social distancing.

“Whilst the legal instrument to bring the above measures into effect is being finalised, the Bank urges the transacting public and producers of gold, tobacco and cotton to fully embrace electronic payments platforms as we fight the spread of Covid-19,” Mangudya said further.

All this comes as there are fresh fears in the country — amid the continuing plunge of the Zimbabwe dollar on the black market and the ever rising prices of basic goods — that things could deteriorate to the horror levels of a decade ago, when the local economy imploded, causing immense pain to citizens.

It also comes as the under-pressure Ncube has all but admitted that his economic measures are not working — saying that the rickety Zimbabwe dollar which he rashly re-introduced last year was causing massive problems for the country, including the current sky-high inflation and economic turmoil.

The local currency has been trading at up to 45 to the American dollar on the black market this week, amid fears that it could plunge further in the coming days, after Ncube said recently that he would set up a currency stabilisation taskforce and also introduce the managed floating rate system in the country — even though authorities don’t appear to have the tools to achieve this.

In addition, and following fresh steep rises in the prices of goods and services in the country this week, some shops in Harare have been making preparations to effect even higher prices, in anticipation of a further fall in the value of the hapless Zim dollar.

Since last year when the local currency was prematurely re-introduced into the market, it has been proven — and Ncube himself openly admitted to this recently — that the weakness and volatility of the Zim dollar is largely behind the country’s skyrocketing prices, high inflation and economic turmoil.

A seemingly despairing Ncube said the government was floating the plummeting Zim dollar, to mitigate the savage battering that it has been receiving on the parallel market.

In June last year, Ncube rocked the local market with his sudden decision to end the general use of multiple currencies in the country — including the US dollar — without having put adequate measures in place to shore up the resuscitated Zim dollar.

And in a bid to stop the use of multiple currencies, the government also invoked Statutory Instrument 212 of 2019 to support the ban on trading in US dollars and other foreign currencies.

However, and following the government’s rushed ban of the general use of the United States dollar in the country, the much coveted greenback has come back with a bang — with many businesses and ordinary people already openly charging and selling their goods in that currency, before last night’s intervention.

Zimbabwe is in the grip of a huge economic crisis — the worst in a decade — which has seen the country continue to experience skyrocketing inflation, as well as debilitating shortages of water, power, fuel, critical medicines and foreign currency, among a myriad other challenges.

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