Back to the future dollar

The Reserve Bank’s devaluation of its bond notes and surrogate currencies lays the ground for a new national currency
As food imports dwindle and oppositionists gear up for a fresh round of protests, the government has announced a radical shake-up to its currency regime to boost foreign reserves. The latest move – an effective devaluation of the government’s bond notes which trade as a surrogate currency alongside the US dollar – would be the first step to re-establishing a national currency.

The Zimbabwe dollar, which lost its value through hyper-inflation, was suspended in 2009 and the country has since used a basket of currencies, dominated by the US dollar and the South African rand. Over the past three years, the government has generated two surrogate currencies, known as bond notes, paper notes issued by the government when it ran out of US dollars and electronic money known as RTGS dollars, used in bank to bank transfers and for card payments (AC Vol 57 No 15, Dollar crisis puts opposition on the streets).

Until now the government has insisted that both bond notes and RTGS dollars were worth the same as US dollars. In fact, they traded at between a third and quarter of the value of a US dollar on the parallel market.

In his monetary policy statement on 20 February, Reserve Bank Governor John Mangudyaannounced there would be an interbank foreign exchange market set up to determine the value of the bond notes. He said it would establish an exchange rate between ‘the current monetary balances and foreign currency’ and would bring predictability to the country’s foreign exchange market.

Although it is a rationalisation of the currency systems, initial market reaction was sceptical, especially to Mangudya’s claims to have arranged ‘sufficient credit lines.’

Delays in payments to key suppliers have been worsening despite a massive boost to revenues after the government tripled the price of fuel last month. Grain millers have warned bakers that current supplies of wheat could be exhausted before the end of the month, triggering widespread shortages of bread. This follows the refusal of some importers to release cargo from bonded warehouses until they are paid.

Africa Confidential has seen a letter, dated 8 January, from Mediterranean Shipping Company, one of the biggest shippers in the country, to the Confederation of Zimbabwe Industries which complains about mounting arrears and threatens to halt the release of containers to Zimbabwean importers who have not paid for the goods or services at the point of origin. It adds that it will ‘discourage the acceptance of cargo destined for Zimbabwe aboard our ships world-wide’.

Demonstrations

At least 17 people were killed in clashes between demonstrators and security forces last month in the wake of the fuel price hike (AC Vol 60 No 2, Turbulent beginnings). Inflation was running at 56.9% in January according to the national statistics agency.

Weeks of demonstrations last month and the prospect of more coming up have exposed rifts in the government over who is in charge of security and the lack of support for economic reform. President Emmerson Mnangagwa‘s pronouncements of a new era of democracy have been shattered after the shooting of demonstrators in Harare in August as well as the violence to meted out to oppositionists last month.

Some in Mnangagwa’s camp talk about a military cabal trying to undermine him but don’t name names. Others say the regime’s fissures over the crackdown are being presented – falsely – as a confrontation between Mnangagwa’s reform plans and the hard-line military stance of Vice-President Constantino Chiwenga, who led the coup against President Robert Mugabe in November 2017 (AC Vol 58 no 23, The crocodile snaps back).

ZANU-PF divisions
Certainly, there are more than two factions in the ruling Zimbabwe African National Union-Patriotic Front (ZANU-PF). Indeed, the military and security forces are themselves divided over policy and economic interests. One ally of Chiwenga told us that he would have little to gain from mounting another coup – this time against 76-year-old Mnangagwa – as he is already in pole position to succeed him and would face more international hostility.

Others in and around the ruling party, we hear, are still pushing the interests of former First Lady Grace Mugabe and former Information Minister Jonathan Moyo (AC Vol 59 No 15, The dollars after the votes). Some young ZANU-PF militants are claiming they have been given military and police uniforms at party offices, and ordered to attack protesters and oppositionists.

While Chiwenga was in India for medical treatment, Mnangagwa announced his first reshuffle of the top military posts on 18 February. Of the four senior officers retired by Mnangagwa, the highest profile was Gen Anselem Sanyatwe, former head of the Presidential Guard, who gave misleading evidence to the public inquiry to last year’s post-election violence (AC Vol 59 No 23, Finding for the government).

The other three were: Maj Gen Douglas Nyikayaramba, Inspector General of the Defence Force; Maj Gen Martin Chedondo, Chief of Army Staff; and Air Vice Marshal Shebba Shumbayawonda. All four are to be sent overseas on unspecified diplomatic missions.

Another round of protests this month will add to pressures on Mnangagwa, who is using the reshuffle and further reorganisation to shore up his position in the security structures. Yet the most potent threat to national security at the moment is the fast deteriorating economy.

MDC wary
Protests against harsh economic conditions last month, dominated by young dissidents, were a response to mounting frustration with the government but were not, initially, led by the main opposition Movement for Democratic Change. We hear that MDC leader Nelson Chamisa is mulling a more strategic way to pressure the government into concessions.

He has rejected any dialogue with the government unless an independent mediator presides over it. Chamisa and his colleague, the former Finance Minister Tendai Biti, are well aware of the damage done to the MDC by its joining a power-sharing government with ZANU-PF in 2009.

Although Mnangagwa’s biggest problem is the economy, he is wavering over the policy prescriptions being pushed. Initially, he sided with Mangudya, who was behind the issuance of bond notes.

Finance Minister Mthuli Ncube, appointed to organise Zimbabwe’s re-entry into the international financial system after last year’s elections, wants to rationalise the array of currency systems. At first, Ncube had hoped to reinstate the national currency within a year.

Given the low levels of foreign reserves, an early revival of the Zimbabwe dollar looks remote, but the formal devaluation of the bond notes is a step towards accepting the market reality that they don’t have parity with the US dollar.

Source: The Confidential