What it means now that zeros are gone
By Eric Bloch
The following is a paper presented by Eric Bloch to the Human Resources (Pvt) Limited seminar on executive remuneration and retention on Monday.
gn=justify>AT the outset, it should be recorded that Zimbabwe has not introduced a new currency — it has merely redenominated its existing currency in recognition of the extent that the buying power of each unit of the currency had diminished, in order to make the usage of the currency more manageable.
Zimbabwe has not redenominated its existing currency in order to contain inflation, and unless the redenomination is abused, it should also not fuel inflation. What Zimbabwe has done is, albeit very belatedly, recognising that the rampant hyperinflation of the last few years has made the currency, in its form until the redenomination occurred, extremely cumbersome and an immense hindrance to the conduct of normal economic transactions.
As inflation soared ever upwards, each transaction required more and more dollars. The transaction, only a year ago, of $1 000 now required in excess of $1,2 million, while that which a year ago was $1 million now requires $1 billion. Results include that:
* almost all computer accounting software in use in Zimbabwe did not have the capacity to process the transactions;
* virtually all cash registers in Zimbabwe’s shops could not record an accumulation of transactions;
* similarly, none of the accounting machines in Zimbabwe, and very few calculators, had capacity to process transactions, for they required as many as 16 digit fields, inclusive of cents, for many transactions;
* not a single petrol pump meter could record the price of petrol or diesel sold;
* the populace had to carry hundreds of currency notes in order to pay for normal, daily routine transactions, with consequential great inconvenience;
* security hazards for those carrying currency, for businesses, and for transmission of currency to and from banks, intensified exponentially; and
* almost all businesses had to use note counters to process cash transactions, be it at supermarket check-out points or otherwise, with inconvenience to management, personnel and customers.
Introduction of a totally new currency, at this point of time, would have been an exercise in the pointless, for as yet the Zimbabwean inflation crisis has to be resolved and halted. Therefore, if a new currency would have been introduced now, it would undoubtedly require to be replaced again in a year or two and so on recurrently until inflation has fallen to single-digit levels.
While what was needed, and has been done, was a transitional measure to address the problems, until a new currency can be introduced, and it must be recognised that, dependent upon how long inflation continues to occur at triple or quadruple-digit levels, a like transitional measure may be required again in the course of the next year or two.
In the meanwhile, undoubtedly partially influenced by the pronounced negativeness, despondency, doom and gloom that years of economic hardship has fuelled, the general reaction to the redenomination of the currency has provoked great concerns, many misunderstandings, expectations of diverse new problems, and a perception of such complexities in the transition, that the belief is widespread that Zimbabwe is now in a currency crisis! That is not the case!
Admittedly, some unforeseen circumstances will need to be expeditiously addressed by the authorities, and constructively dealt with by commerce, industry and the populace. But overall, the authorities have sought to identify realistically the key issues occasioned by the currency redenomination, and how they should be dealt with, and have prescribed them in the Presidential Powers (Temporary Measures) (Currency Revaluation) Regulations, 2006, gazetted as Statutory Instrument 199 of 2006 in a Government Gazette Extraordinary on July 31 2006.
Those regulations were reinforced by very timeous publication of comprehensive Reserve Bank of Zimbabwe advertisements in the national press, accompanied by extensive advertising on radio and television, widely displayed posters, and other RBZ publications and interactions with the banking, commercial and other sectors of the Zimbabwean society.
The key elements of the currency redenomination measures include:
The last three zeros of each currency constituent are deleted. Thus $10 becomes 1 cent, $100 becomes 10 cents, $1 000 becomes $1, $10 000 become $10, $100 000 become $100, $1 million becomes $1 000, $1 billion becomes $1 million and so forth.
That change applies not only to currency notes, but to all incomes and prices. Three zeros must drop off all prices, all salaries, all wages, all governmental charges and anything else as is currency-denominated.
As a result, provided that all comply, the effective value of anyone’s money, from the point of view of buying power, remains unchanged. Save for the effects of continuing inflation, the redenominated income will have the same buying power as the previously denominated income, for all costs should be redenominated to a like extent.
To give effect to this, the Statutory Instrument provides that:
* newly denominated bearer cheques be issued by the RBZ to replace those previously in circulation. Those new bearer cheques are in 13 different denominations, being one, five, 10 and 50 cents, $1, $10, $20, $50, $100, $500, $1 000, $10 000 and $100 000. Those new bearer cheques became legal tender on August 1 2006, with effect from which date all then in circulation bank notes and coins would have a commensurate revalued rate. All the in-circulation former bearer cheques would be similarly revalued, but be of value, force and effect only until August 21 2006, by which date they must be exchanged, through the banking system, for new bearer cheques;
* all deposit balances at financial institutions denominated, as at August 1 2006, under the former currency system, are automatically converted to the new denomination value. It is pertinent to note that the Statutory Instrument specifically provides that financial institutions cannot charge for exchanges of currency and of bearer cheques to an extent of more than 2,5% of the sum of the revalued currency, and cannot charge for the conversion of deposit balances; and
* anyone who, during the three-week period ending on August 21 2006 deposits or exchanges at any single financial institution $5 billion or more (in the case of traders, parastatals or non-individuals), or $100 million or more, in the case of individuals, whether by way of a single or by way of multiple deposits must provide the financial institution a tax clearance certificate, and a declaration of the source of the funds.
Failure to do so will result in the financial institution issuing the depositor a one-year “currency stabilisation bond”, and advising the RBZ thereof.
Thereupon, if the currency is found to be the subject, or proceeds, of a cash-detainable offence, or a “serious offence” as defined in relevant legislation, the currency is forfeited to the state. If the funds are lawfully held, then the bond will be redeemed upon maturity, together with interest at the monthly, average treasury bill rate.
The Institute of Chartered Accountants of Zimbabwe, in response to a query, that it will now issue a directive that any cheque dated on or before July 31 2006 and returned to drawers may be endorsed “not revalued” on the top right-hand or bottom left-hand corner of the face of the cheque, accompanied by the drawer’s signature, and may then be represented.
Any cheque dated between August 1 and 21 2006 is presumed to be drawn in terms of the old currency system, and must be rejected by a financial institution, unless it is endorsed on the top right-hand or bottom left-hand corner of the cheque face with the word “revalued”, accompanied by the drawer’s signature in proximity thereto.
The Statutory Instrument specifically prescribes that the conversion to the new currency system shall not prejudice the subsistence or validity of debts, contracts, securities or any other legal act or instrument whatsoever made, done, executed, incurred, entered into or created prior to August 1 2006 which until August 21 2006 shall be discharged or settled in terms of the old or the new currency systems, and subsequent to the latter date in terms of the new currency system.
Although the system change involves all enterprises and the populace in a fair amount of “mental adjustment” and administration, it is relatively straightforward and, after a few initial hiccups, should settle down to effective commercial operations unhindered by the obstacles created by hyperinflation under the old value system.