US dollars dethrone Zimbabwe’s currency for second time

The greenback has replaced the Zimbabwean dollar as the most-used currency in the southern African nation for a second time, almost four years after the re-introduction of the local unit.

US dollars were utilised for 77% of transactions this year, surpassing the proportion that were conducted in the local currency for the first time since it was reissued in June 2019, data compiled by the statistics agency shows. The Zimbabwean dollar was abolished in 2009 and replaced mainly by the US dollar after an episode of hyperinflation rendered it worthless. It was reintroduced in an attempt to revive the stagnating economy.

A government decision in June to officially reintroduce the greenback as legal tender to rein in surging inflation and stabilise the nation’s tumbling exchange rate has hastened the move away from the local currency. The Zimbabwean dollar has depreciated 91% against the US dollar in the last two years to trade at 944 at the official rate and about 1 600 on the parallel market.

In demand 

Businesses now charge in greenbacks for everything from food, fuel to medicines as they see the currency as a better store of value. Cement maker PPC’s local unit said in its latest financial statement, that 79% of sales were in dollars.

The government’s revenue collection practices have contributed to the dollars’ resurgence, said Gift Mugano, an economics professor at the Durban University of Technology. “Passports are paid for in dollars, some taxes in foreign currency, fuel is in dollars and you can also pay toll gates in dollars,” he said.

Last month the statistics agency adopted blended inflation, which tracks prices in dollars and the local currency over one that assessed costs only in Zimbabwean dollar terms, as it better reflects the realities of the economy.

The new gauge indicates inflation has been less severe than the one measured in local-currency terms.

“The economy for all intents and purposes is largely dollarised,” said Prosper Chitambara, a Harare-based economist.

The central bank’s monetary policy committee attributes the dominance of the greenback to “significant foreign currency inflows into the economy” in 2022. A trend “expected to continue” this year, Governor John Mangudya said in a statement last month.

The shift comes as China has made the internationalisation of the yuan a top priority and countries including Russia, India and Saudi Arabia have sought to include non-dollar payments in their financial systems to reduce their dependence on the US. Last year’s sanctions on Russia and the sharpest tightening in monetary policy by the US Federal Reserve in decades, have brought a new sense of urgency among some nations to do so.

The surge in dollar usage has also led to increased demand from workers to be paid in greenbacks. Miners in March clinched a deal to receive the bulk of their pay in dollars, the first such wage agreement in five years.

Treasury also announced a salary hike for public servants last month that included an increase in Zimbabwean dollars and increments in greenbacks.

The current dollarisation is accepted by authorities as it helps foster confidence in the economy, according to Persistence Gwanyanya, a member of the central bank’s MPC.

© 2023 Bloomberg