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Weak currency fuels dollarisation

Jesilyn Dendere

NOMSA Bere will be homeless by the end of this month. The owner of a one-bedroom flat she has been renting in town for the past four years last month tol

d her that he now requires payment in foreign currency.

“He said he wanted US$100 a month but I told him that I would not be able to afford it so he gave me a month’s notice,” said Bere, a receptionist with a local commercial bank.

Bere’s notice will expire at the end of this month but she has not been able to get alternative accommodation in town.

“Everyone I ask is giving me the same figures. They want their rentals in foreign currency.” This week Bere approached someone who had advertised to lease a bachelor’s flat but she found no joy.

She was told to either offer something in the range of R450 or there was no deal. When she tried to explain that it was against government regulations to charge rentals in foreign currency the landlord said: “Then go and get a flat from those guys who are telling you that. Why should I let you stay in my flat for the Zimbabwean dollars? Go and tell whoever you want, even the government is doing it.”

It is not only individuals who are demanding payment in foreign currency. Government has over the past eight months passed regulations forcing people to pay for services and duties in foreign currency.

In fact the whole country is almost dollarised. Two weeks ago Paxton Ndebele, a Bulawayo based businessman, received a note from the Post Office notifying him to collect a parcel that had been sent by a friend in South Africa.

The parcel contained old clothes which Ndebele intended to give to his workers’ children as Christmas presents but when he went for collection the post master demanded foreign currency to release the package.

“They gave me a choice to pay US$29 or 170 pula or R200 but I refused because I am in Zimbabwe and cannot be paying for services in foreign currency. I simply don’t have the foreign currency,” said Ndebele.

“I asked them to take it back and they said they would. I was supposed to pay the initial amount and failure to do so will result in the parcel being auctioned and the proceeds will be given to government.”

Bere and Ndebele’s cases are only a few examples of the hundreds of Zimbabweans who now are now being forced to pay for goods and services in foreign currency.

As the Zimbabwean dollar continues to crush against major currencies, eroding the purchasing power of consumers, businesses and individuals are now demanding payment in foreign currency to hedge against loss of value. Some businesses are now pegging their quotations in foreign currency as a hedge against rising inflation. Quotations in local currency are lasting for less than a day.

The explanation from business is that the local currency is losing value everyday. Individuals have the same concerns but they have an extra assurance in doing it: government is doing it too.

Companies like Zimplats have been paying their power bills in foreign currency since last year. Mutare Board and Paper Mills, the newsprint manufacturing subsidiary of listed Art Corp, has pledged to pay power bills in foreign currency. Government departments have joined in the rush for foreign currency. The registrar general has given the prospective passport seekers an option to pay in foreign currency. Those that pay the fee of US$220 will get their passports faster.

Zimra is also demanding duty in foreign currency for imported vehicles, electrical gadgets and clothes. In some cases foreign currency can be paid for food imports.

The idea has found supporters even among business leaders.

Three weeks ago Zimbabwe National Chamber of Commerce (ZNCC) president, Marah Hativagone, threw her weight behind Air Zimbabwe’s proposal to charge airfares in foreign currency saying the country was ‘awash with United States dollars’. She maintained her position even after media criticism.

The question is whether Zimbabwe’s economy has been dollarised? “Partly so,” most analyst said this week.

They said although it is still early to say the country has been dollarised the situation on the ground indicates that Zimbabwe was approaching that situation. With inflation now at 14 840% most people find it unwise to save money in local currency. The logical thing is to convert and save in foreign currency.

But there is a cost to everything.

Brains Muchemwa, an economist with Genesis Bank, said the use of foreign currency was creating distortions.

“The existence of various goods and services requiring payment in United States dollars creates multiple pricing distortions,” Muchemwa said.

“The authorities don’t wish to embrace dollarisation in its entirety but in piecemeal approach which unfortunately does not carry with it the full benefits associated with dollarisation.”

Muchemwa said the government is concerned with losing its ability to generate revenue out of issuing the Zimbabwean dollar if it adopts 100% dollarisation because it won’t be able to print money to finance its activities.

“As long as the budget deficit is still very high as is the case right now, the government will be less willing to adopt full dollarisation.” The trouble with a dollarised state is that it entails that money be generated instead of being printed.

Economic consultant, John Robertson, said individuals and businesses that charge in foreign currency were only taking a defensive position against a weak currency whose value had been destroyed by government’s economic policies.

“We have destroyed our economy, the money has lost all its value, the productive capacity has been destroyed,” Robertson said.

“Government has lost tax revenue because it is has destroyed all the sectors that used to generate income hence the new drive was to swindle the few hard currency that Zimbabwean are making, said Robertson.

He said it is government that sent the wrong message to the people when it started to charge for duty in foreign currency.

“It is government that has said it’s acceptable to demand payment in foreign currency.

“It’s because the Zimbabwean dollar is now valueless and people need to be paid money with value. The Zimbabwean dollar is not convertible, and no individual wants to exchange any currency for the Zimbabwean dollar,” Robertson said.

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