Business / Companies
Zimbabwe retail outlets reject rand coins
08 Nov 2015 at 07:58hrs | Views
THE country's monetary authorities - the Reserve Bank of Zimbabwe - last week noted that they currently hold bond coins worth $1 million in their vaults and the money can easily be deployed in the market to offset any imbalances that might result from the wholesale rejection of the South African rand.
Stung by the continued weaknesses of the rand, most retailers and the transacting public are now reluctant to trade in the currency, opting instead for bond coins whose value is indexed to the United States dollar.
After the introduction of the multi-currency system in February 2009, which includes a basket of other regional and international tradable currencies, the greenback and the rand became the dominant units of exchange.
For the past five years, the local market has been relying on a casual exchange rate of the two currencies where one United States dollar was exchanged for 10 rands.
However, a strengthening dollar has prompted the market to revert to real exchange rate valuations for fear of suffering exchange losses.
And in order to minimise risk, the market is now rejecting the weaker rand.
The continued volatility of the currency has also not helped.
By Thursday, the rand was trading at 1:13,9 against the greenback, the weakest rate since December 2001.
There are also fears that an increase in interest rates by the United States Federal Reserve - occasioned by a recovering American economy - will most likely lead to the further strengthening of the US dollar.
Business confidence in South Africa also continues to be at its lowest in 22 years as industry frets over slowing demand in China, softening commodity prices and a biting power crisis.
It is therefore unsurprising that the rand has since dropped by more than 15 percent since the beginning of the year.
Zimbabwe, by virtue of having South Africa as its biggest trading partner, has significant quantities of the rand in circulation.
Much of the currency finds its way onto the local market through remittances from Zimbabweans who are living and working in that country.
Official statistics indicate that about 88 percent of the Zimbabwean diaspora is in South Africa.
It is estimated that it is this constituency across the Limpopo that contributes an estimated 33 percent or $277 million of remittances.
Last year, total diaspora remittances topped $840 million.
There are fears that most of the holders might be left in a lurch if they are to convert their rands into the United States dollars that local retailers are insisting upon.
It is not only small traders such as vendors and transport operators who are rejecting the rand, especially the rand coins, but big retailers as well.
A survey carried out by The Sunday Mail Business revealed that listed supermarket OK Zimbabwe branches - OK First Street, OK Kwame Nkrumah and OK Gweru - were rejecting rand coins as of last week.
However, it could not be established whether this was the official position of the retailer as questions emailed to the supermarket's chief executive officer, Mr Willard Zireva, had not been responded to by the time of going to print.
Ironically, the market rejected the bond coins when they were introduced in December 2014 as they were suspicions that they were a precursor to the introduction of the Zimbabwean dollar.
The bond coins were issued in denominations of 1c, 5c, 10c, 25c and 50c in order to help retailers correctly price their products as opposed to merely rounding off prices under the pretext of change shortages.
But of late, there has been concern that the bond coins that are currently in circulation are not enough to satisfy demand.
Last week, RBZ Governor Dr John Mangudya said bond coins that are presently circulating on the market are worth $9 million.
He indicated that the central bank can only release additional coins according to the dictates of the market.
"We have been very consistent that bond coins are demand driven and that they go through the normal banking channels.
"Shops request for their requirements through the formal banking system, so we can't just say that there has been demand or no demand; we will check," said Dr Mangudya.
Of the $10 million bond coins unveiled last year, $9 million is already circulating.
Explained Dr Mangudya: "It's still US$9 million; coins don't get out of circulation, they circulate in the economy.
"(So) the fair comment will be that we are assessing the situation."
Last week, Confederation of Zimbabwe Retailers (CZR) president, Mr Denford Mutashu said although some retailers were regrettably rejecting the rand, it was not the official position of the grouping.
"No, that is not the position we have taken as retailers . . . it is defying the law because we are in a multiple-currency regime which was promulgated by the Government in order to bring sanity and stability to the economy.
"If anyone then refuses to accept any of the currencies that have been legalised to circulate, I think that is retrogressive. There is a way that the issue can actually be resolved instead of making the consumer suffer," said Mr Mutashu.
He declined to name retail outlets that are rejecting the rand, but acknowledged that there are "two big chains" that have been mentioned by consumers as rejecting the rand.
Mr Mutashu said they are dealing with the implicated retailers but "our approach is to engage first before we decide to make public".
"When the engagement fails, we will definitely make public that we have engaged retailer A and failed to agree. So it will be to the detriment of the retailer if one has been found wanting on the regulations that are actually contrary to the conduct of business.
"The effect now is that if two big (supermarket) chains have started refusing (the rand), it will have a serious ripple effect on the rest of the retail sector.
"So we have started engaging the retailers so that we come up with a common position so that they receive all the currencies that have been authorised (by Government)," said Mr Mutashu.
Where the rand is still being accepted, the exchange rate is so punitive that holders lose their money literally for nothing.
Commuter omnibuses want R7 for a one-way trip, which has caused chaos among travellers.
In Bulawayo, some supermarkets are said to be still accepting the rand but travellers are resisting the US$1 to R14 conversation rate that is generally being used.
Mr Mutashu said the CZR will soon be embarking on awareness campaigns to meet consumers and get their grievances and find ways of addressing them.
The CZR will also ensure that the level of services provided by the retail sector is "world class".
ln an interview last week, Economist and managing director of Oxlink Capital, Mr Brains Muchemwa said the current phenomenon where the market can easily switch from one currency to the other actually shows the efficacy of the multi-currency rather than a system where one currency is considered to be the only legal tender.
"It must be appreciated that dollarisation has over the years become a generic term that describes the use of another currency that is not necessarily the local unit of the country. It cannot be considered within the strictest meaning of the word.
"The current multi-currency system actually enables people to hedge and manage currency risk.
"It is not actually the rand that is being rejected, but the rate at which people want to convert it at.
"So, the current system allows one to switch from one currency to another; it is not about the medium of exchange but the store of value function of the currency in issue. Imagine if it was the US dollar that was losing value, people would have reacted to it in the same way they are reacting to the rand," explained Mr Muchemwa.
In addition to other foreign currencies already in use within the multi-currency system, Government in January last year also added the Indian rupee, the Japanese yen, the Chinese yuan and the Australian dollar.
Stung by the continued weaknesses of the rand, most retailers and the transacting public are now reluctant to trade in the currency, opting instead for bond coins whose value is indexed to the United States dollar.
After the introduction of the multi-currency system in February 2009, which includes a basket of other regional and international tradable currencies, the greenback and the rand became the dominant units of exchange.
For the past five years, the local market has been relying on a casual exchange rate of the two currencies where one United States dollar was exchanged for 10 rands.
However, a strengthening dollar has prompted the market to revert to real exchange rate valuations for fear of suffering exchange losses.
And in order to minimise risk, the market is now rejecting the weaker rand.
The continued volatility of the currency has also not helped.
By Thursday, the rand was trading at 1:13,9 against the greenback, the weakest rate since December 2001.
There are also fears that an increase in interest rates by the United States Federal Reserve - occasioned by a recovering American economy - will most likely lead to the further strengthening of the US dollar.
Business confidence in South Africa also continues to be at its lowest in 22 years as industry frets over slowing demand in China, softening commodity prices and a biting power crisis.
It is therefore unsurprising that the rand has since dropped by more than 15 percent since the beginning of the year.
Zimbabwe, by virtue of having South Africa as its biggest trading partner, has significant quantities of the rand in circulation.
Much of the currency finds its way onto the local market through remittances from Zimbabweans who are living and working in that country.
Official statistics indicate that about 88 percent of the Zimbabwean diaspora is in South Africa.
It is estimated that it is this constituency across the Limpopo that contributes an estimated 33 percent or $277 million of remittances.
Last year, total diaspora remittances topped $840 million.
There are fears that most of the holders might be left in a lurch if they are to convert their rands into the United States dollars that local retailers are insisting upon.
It is not only small traders such as vendors and transport operators who are rejecting the rand, especially the rand coins, but big retailers as well.
A survey carried out by The Sunday Mail Business revealed that listed supermarket OK Zimbabwe branches - OK First Street, OK Kwame Nkrumah and OK Gweru - were rejecting rand coins as of last week.
However, it could not be established whether this was the official position of the retailer as questions emailed to the supermarket's chief executive officer, Mr Willard Zireva, had not been responded to by the time of going to print.
Ironically, the market rejected the bond coins when they were introduced in December 2014 as they were suspicions that they were a precursor to the introduction of the Zimbabwean dollar.
The bond coins were issued in denominations of 1c, 5c, 10c, 25c and 50c in order to help retailers correctly price their products as opposed to merely rounding off prices under the pretext of change shortages.
But of late, there has been concern that the bond coins that are currently in circulation are not enough to satisfy demand.
Last week, RBZ Governor Dr John Mangudya said bond coins that are presently circulating on the market are worth $9 million.
He indicated that the central bank can only release additional coins according to the dictates of the market.
"We have been very consistent that bond coins are demand driven and that they go through the normal banking channels.
"Shops request for their requirements through the formal banking system, so we can't just say that there has been demand or no demand; we will check," said Dr Mangudya.
Of the $10 million bond coins unveiled last year, $9 million is already circulating.
Explained Dr Mangudya: "It's still US$9 million; coins don't get out of circulation, they circulate in the economy.
"(So) the fair comment will be that we are assessing the situation."
Last week, Confederation of Zimbabwe Retailers (CZR) president, Mr Denford Mutashu said although some retailers were regrettably rejecting the rand, it was not the official position of the grouping.
"No, that is not the position we have taken as retailers . . . it is defying the law because we are in a multiple-currency regime which was promulgated by the Government in order to bring sanity and stability to the economy.
"If anyone then refuses to accept any of the currencies that have been legalised to circulate, I think that is retrogressive. There is a way that the issue can actually be resolved instead of making the consumer suffer," said Mr Mutashu.
He declined to name retail outlets that are rejecting the rand, but acknowledged that there are "two big chains" that have been mentioned by consumers as rejecting the rand.
Mr Mutashu said they are dealing with the implicated retailers but "our approach is to engage first before we decide to make public".
"When the engagement fails, we will definitely make public that we have engaged retailer A and failed to agree. So it will be to the detriment of the retailer if one has been found wanting on the regulations that are actually contrary to the conduct of business.
"The effect now is that if two big (supermarket) chains have started refusing (the rand), it will have a serious ripple effect on the rest of the retail sector.
"So we have started engaging the retailers so that we come up with a common position so that they receive all the currencies that have been authorised (by Government)," said Mr Mutashu.
Where the rand is still being accepted, the exchange rate is so punitive that holders lose their money literally for nothing.
Commuter omnibuses want R7 for a one-way trip, which has caused chaos among travellers.
In Bulawayo, some supermarkets are said to be still accepting the rand but travellers are resisting the US$1 to R14 conversation rate that is generally being used.
Mr Mutashu said the CZR will soon be embarking on awareness campaigns to meet consumers and get their grievances and find ways of addressing them.
The CZR will also ensure that the level of services provided by the retail sector is "world class".
ln an interview last week, Economist and managing director of Oxlink Capital, Mr Brains Muchemwa said the current phenomenon where the market can easily switch from one currency to the other actually shows the efficacy of the multi-currency rather than a system where one currency is considered to be the only legal tender.
"It must be appreciated that dollarisation has over the years become a generic term that describes the use of another currency that is not necessarily the local unit of the country. It cannot be considered within the strictest meaning of the word.
"The current multi-currency system actually enables people to hedge and manage currency risk.
"It is not actually the rand that is being rejected, but the rate at which people want to convert it at.
"So, the current system allows one to switch from one currency to another; it is not about the medium of exchange but the store of value function of the currency in issue. Imagine if it was the US dollar that was losing value, people would have reacted to it in the same way they are reacting to the rand," explained Mr Muchemwa.
In addition to other foreign currencies already in use within the multi-currency system, Government in January last year also added the Indian rupee, the Japanese yen, the Chinese yuan and the Australian dollar.
Source - Sunday Mail
