Zimbabwe moving towards dollarisation, says Economists

Economists have warned government over the continued usage of bond notes as a medium of exchange saying the surrogate currency is at risk of facing rejection from the market.

Government is adamant that the bond note, introduced in 2016, should continue to trade at par with the United States dollar despite the fact that the unit has lost considerable value to the greenback on the parallel market.

As a result, a three-tier pricing system has emerged on the domestic market, with market players pegging their prices in US dollars, bond notes and the Real Time Gross Settlement (RTGS) to reflect rates that would be obtaining on the black market.

With the bond notes failing to hold ground on the black market, economists opine that the country is progressively moving towards unofficial dollarisation.

It won't be the first time though this has happened.

In 2009, the country abandoned the Zimbabwe dollar before officially dollarising after adopting the US dollar as the anchor currency in its basket of currencies.

Despite the clear and present danger facing the surrogate currency, fiscal authorities are maintaining that the RTGS, bond note and US dollar are at parity.

Finance minister Mthuli Ncube also argues that demonetising the bond note and RTGS balances would be a costly exercise that needs to be budgeted for at a time when Treasury is operating on a shoe-string budget.

This has further worsened distortions in the market, thus fuelling the currency black market.

It would, however, appear that the officials are fighting a lone battle.

Banks have been rolling out the Foreign Currency Accounts (FCA), and keeping RTGS and bond note balances in separate accounts - a clear indication that three units are not the same.

The Zimbabwe Revenue Authority is also demanding duty on imported cars in foreign currency, while at the same time compelling companies to pay tax in the currency they would have invoiced their clients.

Renowned currency expert Steve Hanke cautioned government this week, saying market forces are spontaneously re-dollarising which will lead to the dumping of the bond note and RTGS.

"The dynamics in Zimbabwe are clear. Zimbabweans know that bond notes and RTGSs are not worth a US dollar and that the government has robbed them. So, everyone wants to be paid in dollars and even the government wants to be paid in dollars.

"The economy is trying to spontaneously dollarise, as it did in 2008 and Zimbabweans want to rid themselves of bond notes and RTGSs," he said.

National Business Council of Zimbabwe president, Langton Mabhanga said re-dollarisation must be viewed as a sensitive process as it is causing excruciating pain on the populace.

He said Ncube must spell out the safety nets and explain the stealth dollarisation because there are no policies that are protecting even the poor and vulnerable.

"Government itself doesn't have forex and it is the biggest employer so the fiscal authority needs to protect the transacting public," he said.

Economist Carren Pindiriri said the bad money has the effect of chasing away good money, "so it's obvious that rational economic agents will not use US dollars where bond is an alternative and the market has already responded by the bond price and a US dollar price".

Economist John Robertson said there is need for government to fix sectors such as agriculture to increase exports as opposed to dealing with the symptoms.

"We will keep talking about corruption, teachers and doctors demanding US dollars because we have not done much to fix the real problems, which are deliberately being ignored," said Robertson.

This also comes at a time where the inflation rate has reached 31 percent, a huge leap from 20,85 percent reported by Zimbabwe National Statistics Agency previously.