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confidentially speaking

The Africa Confidential Blog

  • 27th June 2019

Zimbabwe's bad dollar returns

Blue Lines

The best construction that can be put on the return of the Zimbabwe dollar and the ban on foreign currencies is that its authors wanted to rein in inflation and crack down on the currency trading rackets that gave politically connected businesses access to cheap US dollars. But it won't fix either problem.

The ban on the use of the US dollar, South African rand and other foreign currencies announced on 24 June will drive the foreign exchange trade further underground. Already, small-time traders in the centre of Harare are being harassed by police while favoured business people who can organise their trades at arm's length suffer no sanction.

The premise for the reintroduction of the national currency – that there is enough local confidence in it to sustain its official rate of US$1=Zim$5.2 – is palpably false. Before the ban on the US dollar was introduced, the Zimbabwe dollar was trading at half that level and it has fallen further this week.
Neither is there any sign that the return of the Zim dollar will cut inflation, now nudging 100%. As shops repriced their goods in Zim dollars, crossing out the US dollar pricing, customers complained the goods were even more expensive.

Both the main opposition Movement for Democratic Change and the trade unions reject the move and look set to organise protests. The IMF, with which the government has just signed a monitoring agreement, maintains a diplomatic silence.