HomeLocal News‘Operation Pangolin’ will not stop tide of re-dollarisation

‘Operation Pangolin’ will not stop tide of re-dollarisation

TAURAI MANGUDHLA

THE increasing number of outlets rejecting the local currency is a major indication of the confidence deficit the local unit faces as the exchange rate runs amok.

This comes as the parallel market exchange rate rocketed by 27% during the third quarter of this year, marking its steepest growth in one year, according to Inter-Horizon (IH) Securities.

Consequently, a top banker and several industrialists were quizzed or caged last week in a combined Zimbabwe Republic Police (ZRP) and Reserve Bank of Zimbabwe (RBZ) blitz code-named “Operation Pangolin”.

Unlike the large retailers such as OK Zimbabwe, the smaller retail shops are increasingly refusing to accept local currency whether as cash or other electronic modes of payment and when they do, the exchange rate is far above the official RBZ auction system weekly average.

Prices are clearly marked in US dollars and rarely do you find a customer requesting to use local currency despite the bulk of Zimbabwe’s formal workforce earning in the local currency.

This is the case for most tuck shops littered around the cities and mostly in the “downtown” area of central Harare.

Conveniently located in and around bus termini, traders have everything from imported groceries to locally manufactured goods, some of which are in short supply.

This group of players has been significantly growing over the past few years because of their ability to pay cash on delivery and access to hard currency. Now, some manufacturers even reserve a chunk of their products for the traders who sell in cash and have no trouble adjusting the prices.

In 2016, when the bond notes were introduced, cases of customers confronting service providers for refusing to accept the bond notes were rampant and reports were made to the police and monetary authorities. But as the bond notes clearly became unpopular with premiums of 30% charged on sales, the United States dollar became the currency of choice and consumers lived with the reality.

Government’s decision to ban the use of the US dollar in 2019 caused all sorts of problems, with service providers often being charged for breaching the law.

The state then made a major climbdown re-introducing the US dollar through the guise of ameliorating the impact of the Covid-19 pandemic.

On the introduction of the auction platform, on June 24 last year, the local currency traded at ZW$57 against the US dollar and it has been on a slippery slope to breach the US$1:ZW$190 on the parallel market.

Prior to the introduction of the forex auction, an interbank system had been in place since February 2019.

The average interbank rate was in March 2020 fixed at US$1:ZW$25.

The official rate, however, is arguably not a true reflection of the currency situation given that about US$500 million is circulating outside the formal banking system and the tuckshops and informal traders being a major component of this constituency.

In an update on recent economic developments and outlook Reserve Bank of Zimbabwe said an estimated US$500 million is circulating outside the formal banking channels, way higher than the US$300 million in the formal market.

Development economist Chenayimoyo Mutambasere said: “We have always said that the demise of the Zimbabwean dollar is inevitable. The parallel market is actually like the real market because that’s where the foreign currency is, really.”

On the forex auction, businesses are only getting a portion of their requests with approved claims taking long to be settled in some instances.

A huge foreign currency backlog hit the country recently, with players going as long as 15 weeks before receiving their approved bids. This has kept the foreign currency black market alive with rates now double the official rate.

Economist Rutendo Masawi said some formal businesses, which have access to the official currency market, do not always use their allocations for imports, but were abusing the forex through buying and selling currencies on the parallel market.

This has caused the local currency to tumble.

“In the past, this has happened with respect to government suppliers who are paid huge chunks for their service at once, but in Zimdollar. The funds are then channelled towards the parallel market through a web of forex dealers,” Masawi said. “Some of these payments have been done outside of the budget and thus requiring the RBZ to create new money, in turn impacting money supply levels. These shocks, through Base Money (RM) have caused a failure of the Zimbabwean dollar.”

As the local currency weakens, the US dollar has become the preferred medium of exchange and consumers, whether willingly or not, eventually accept the local currency as an inconvenient alternative.

The informal market, accounting for the bulk of daily transactions in terms of volumes, is the US dollar market.

Even smaller denominations of the greenback are found there more than in the formal channels.

Using the local currency comes with the inconvenience of having to change it into US dollars for some transactions where its use is just not an option. Apart from that, one has the task of keeping up with the parallel market exchange rates that are always changing.

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