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Zimbabwe launches new currency in an attempt to alleviate economic pressure

24.02.2019
Article from AFRIC Editorial
In an effort to change the fortunes of the country, Zimbabwe has launched a new currency known as the Real Time Gross Transfer Dollars or RTGS Dollars. The official or formal exchange of RTGS dollars and US dollars (RTGS dollars/US Dollars) is going to begin on Monday the 25th of February.

ECONOMIC CRISIS BESIEGING ZIMBABWE

The election of Emmerson Mnangagwa as president signaled a chance for Zimbabwe to revive the economy but not much has changed since 2017. Instead there has been a shortage of bread, cooking oil, and fuel has worsened in recent months especially after the 150% hike to fuel prices. Banknotes became scarce and shop shelves have often been left with nothing to display.

Zimbabwe’s economy has been in dire straits since hyperinflation wiped out savings between 2007 and 2009 and the Zimbabwean dollar was abandoned. Zimbabweans had since relied on electronic payments in US Dollars, which are in short supply and had often functioned as the main currency.

The success or failure of this new currency will go a long way towards determining whether President Mnangagwa regains public trust, further undermined by signs of security forces are reverting to the strong-arm tactics they often deployed under former president Robert Mugabe.

But the introduction of the RTGS Dollars provides a new dimension in trading, but how does the RTGS Dollars function?

HOW DOES THE RTGS Dollars WORK?

What consumers in Zimbabwe have in their bank accounts, mobile money wallets or pockets right now is now called RTGS Dollars. But for those who had opened Foreign Currency Account (FCA), their money is still pure US Dollars. The RTGS Dollars possess legal tender status and will serve as the unit of account for the government’s books. The new currency consists of bond notes and electronic money.

Central Bank Governor John Mangudya said the new currency would trade at around 2.5 to the US dollar. The exchange rate will be determined by the forces of supply and demand on an auction market the Reserve Bank of Zimbabwe has set up called the Interbank Foreign Currency Exchange Market, which is made up of banks and Bureau de change.

The governor has promised that nothing should change just because bond notes, bond coins, and RTGS balances are now called RTGS dollars. Zimbabwe floated its quasi-bond note currency, effectively devaluing the unit in what experts said was in preparation of a local currency through a slow erosion of bloated bank balances that had driven Zimbabwe’s official inflation to above 50 percent

THE RISK OF THE BLACK MARKET INFILTRATION

The black market will obviously exist because typically it offers better rates than those offered by banks or Bureau de changes, and in some instances those rates could be staggering.

The black market premiums indicates, among other things, the severity of the controls and restrictions a country imposes on its citizens and Zimbabwe should take note of this. Since the black market premium on foreign exchange is an implicit tax on exports, the reduction in the premium means that the export tax resulting from exchange controls has been reduced.

Bond notes now trade on the black market at 3.2 per dollar, according to the ZimBollar Research Institute. But in Zimbabwe parallel markets are not a new phenomenon. The resurgence of the foreign currency black market still pays homage to the traditional driving force which is government’s obsession for exchange controls.

But the government must clamp down on these parallel markets in order to mainstream revenues from trading and plough in back into the ailing economy. Zimbabwe has a long way to go to reestablish itself as a strongman in the region and a lot rest upon president Mnagagwa’s regime to fix the country. As a sovereign country, it should be afforded the space and time to tackle its challenges but not at the expense of its people.

Article from AFRIC Editorial

Images from google image/zimbabwe news currency

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