The dual currency dilemma

June 16, 2022

A notice this week on the impending breakfast meeting on June 23 illustrated the depth of the crisis caused by the dual currency.

One was supposed to fork out US$50 or ZWL$35,000 to attend the indaba.

There was an uproar as this would have meant that the organisers had used an exchange rate of 1:700.

Under pressure, the charge was cut by almost half to ZWL$18,200 with social media abuzz that the local unit had gained due to “market sentiment”.

This is just but one of the cases in which the dual currency regime has created headaches, especially in pricing as suppliers come up with different rates.

The situation has been compounded by the existence of multiple exchange rates, both official and unofficial.

On the official rate side, there is the foreign currency auction and willing buyer-willing-seller. The two rates are supposed to meet in future.

In unofficial circles, there are cash, bank transfer, small amounts, huge amounts and the “EcoCash” exchange rates.

The presence of multiple exchange rates has created havoc with business using any exchange rate depending on which side of the bed someone wakes up on.

This has created distortions in the market as calls for the adoption of a mono currency regime grow louder.

Critics of the dual currency regime say the system has run its course and believes redollarisation is the way out.

They say the dual currency system was a stop gap measure designed to mitigate the impact of the Covid-19 pandemic.

A section of experts is calling for the redollarisation of the economy, arguing that the measure will stabilise prices in the same way it did during the period of the Government of National Unity in 2009 to 2013.

Monetary authorities say the economy does not have sufficient resources to sustain a dollarised environment with monetary authorities saying 56% of the transactions in 2021 were using local currency.

The government is working on a de-dollarisation plan and has allowed some miners to pay some of their taxes and royalties in local currency to promote the use of the local currency.

However, they could be flogging a dead horse as the local currency has lost its mojo as a store of wealth because it has been eroded by inflation.

Annual inflation returned to three-digit levels, hitting 131.7% in May.

The effects of the Russia-Ukraine war have played havoc on the economy. For Zimbabwe, the war worsened an already bad situation.

Prior to Russia’s special operation in Ukraine, the gap between the official and parallel market was widening putting pressure on the local currency.

The central bank was struggling to release the money allotted atthe foreign currency auction with the backlog surpassing US$300m.

There is enough justification to support the notion that conversation on the currency conundrum has to start now.

Does Zimbabwe require a dual currency regime? What went wrong when it appeared the plan was working? Should Zimbabwe go for a mono currency regime and which unit to use?

These are the questions monetary authorities, business and government have to answer in a bid to resolve the current crisis. It’s a conversation that requires sober minds to be guided by facts and not claims of patriotism and sovereignty.

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