Harare - Zimbabwe’s central bank abolished the use of multiple currencies as it tries to curb black-market currency trade that has contributed to surging inflation.
With immediate effect, the US dollar, South African rand and other foreign currencies will no longer be recognized as legal tender in the southern African nation, the central bank said in an official notice this week.
Zimbabwe’s authorities have been struggling to close the gap between the official and black-market exchange rates since the government effectively devalued its currency, known as the RTGS dollar, in February and allowed it to trade on the interbank market. The RTGS$ was changing hands at about 13 per dollar on the streets on Harare early this week, while the interbank rate is 6.32.
The central bank’s announcement may help stabilise inflation. Prices in Zimbabwe are rising at the fastest pace since a hyperinflation episode a decade ago, when the rate surged to an estimated 500 billion percent.
President Emmerson Mnangagwa has signaled that the country plans to abandon the multi-currency system introduced in 2009, when it abandoned the Zimbabwe dollar, to underpin efforts to stabilize the economy.
Effects still linger from the last time the Zimbabwe dollar crashed and burned, transforming one of Africa’s most developed nations into a place where fuel and bread are periodically unavailable, almost everyone is unemployed and a quarter of the population has emigrated.
In February, under the urging of Finance Minister Mthuli Ncube, the central bank did away with the insistence that bond notes and the RTGS$ trade on par with the US currency and instead created an interbank market. Despite this week’s announcement, the RTGS$ has continued its decline. It traded at 13.50 to the dollar Tuesday, according to data compiled by Bloomberg, bringing its fall this quarter to 69%.
“The market was self-U.S. dollarizing,” Ncube, an economist who has lectured at the University of Oxford, said in a video posted on Twitter. “It was uncontrollable and we felt that we needed to bring the situation under control.”
Ordinary Zimbabweans have seen at least three rounds of fuel price hikes this year, and the cost of other goods such as bread and beer have risen markedly. Inflation, officially at almost 100%, is much higher if black-market rates are used.
The central bank must “exercise restraint and prudence with the printing machine,” said Denford Mutashu, president of the Confederation of Zimbabwean Retailers.
The Chamber of Mines of Zimbabwe said its members want to know if they will still be paid for their gold in the foreign currency they need to pay for essential imports.
But the government’s biggest challenge may be avoiding a repeat of the unrest it saw in January when streets protests, led by labour unions, erupted after the fuel price was more than doubled overnight. At least 17 people died in the ensuing crackdown by security forces.
This decision “destroys whatever little confidence what was left,” said Peter Mutasa, president of the Zimbabwe Congress of Trade Unions. “As workers we reserve the right to do whatever is right for us and we will decide the way forward on how best we proceed.”