Zimbabwe Bans the Use of the U.S. Dollar and other Foreign Currencies [photos and video], Why Zimbabwe Outlawed Use Of US Dollar And Other Foreign Currencies.
On Monday, Zimbabwe’s finance minister Mthuli Ncube banned the use of the U.S. dollar and a host of other foreign currencies in local transactions in a bid to protect his fledgling new currency against black market speculation.
In 2009, Zimbabwe permitted the US dollar and other foreign currencies to be used as the country’s legal tender after hyperinflation decimated the Zimbabwean dollar’s value.
Earlier this year, to pave the way towards ending so-called “dollarisation”, the country laid the foundations for a new Zimbabwean dollar by introducing an interim currency, the Real Time Gross Settlement dollar (RTGS) or “zollar”.
But since its launch in February, the RTGS has struggled amid black market speculation that has seen its value slide sharply against the US dollar.
Why Zimbabwe Banned Use of U.S. Dollar
Monday’s government decree values the RTGS at par with the Zimbabwe dollar and mandates it be used as the country’s sole legal tender for local transactions with immediate effect.
“The British pound, United States dollar, South African rand, Botswana pula and any other foreign currency whatsoever shall no longer be legal tender alongside the Zimbabwe dollar in any transactions in Zimbabwe,” read the decree.
But some believe the measure will not arrest the decline of the RTGS.
“I believe its measure is absurd,” said Eddie Cross, an economist and founding member of the Democratic Change Movement, Zimbabwe’s primary opposition party.
“The exchange rate is going to operate and this is out of sync entirely. This is financial sabotage for the sake of heaven. I hope tomorrow people won’t go to the road. That’s just disastrous, “Al Jazeera informed Cross.
Independent economist Victor Bhoroma said companies with foreign currency debts could see the price of servicing those debts soar.
“It implies that all debts contracted in USD are now payable in local currency,” Bhoromoa said to Al Jazeera. “All goods and services indexed in USD (i.e. insurance and assets) as it was a legal tender will now be indexed in local Zimbabwean dollar.”
Bhoroma advised that a spate of defaults and litigation could be triggered against both companies and government. He added that companies are unlikely to use the formal exchange rate to price their products, “which will have a negative effect on production as manufacturers are waiting and seeing attitude.”
Since becoming Minister of Finance, Ncube has suggested currency reforms and the implementation of a full-fledged currency.
It is thought that the decree of Monday is part of these reform attempts. But some economists are skeptical as to whether the nation can stop gravitating back to foreign currencies.
“It’s definitely an effort to halt redollarization,” Bhoromoa said. “But there are many levels of dollarization. Zimbabwe will continue to be in de-facto dollarization as long as the Zimbabwean dollar is inflated