The Reserve Bank of Zimbabwe’s (RBZ) recent decision to devalue the Zimbabwean Gold (ZiG) by 50% has left the nation reeling.
Overnight, the currency’s value plummeted from 14 to 23.4 against the US dollar, further entrenching the widespread distrust of both the local currency and the government.
This development is only the latest chapter in Zimbabwe’s tumultuous relationship with its currency.
In the past 15 years, Zimbabwe has introduced six currencies, all of which have failed miserably and been scrapped due to alarming exchange rates against the USD.
The Zimbabwean dollar suffered a staggering inflation rate of 89.7 sextillion percent in the early 2000s, rendering it virtually worthless.
The subsequent introduction of the multi-currency system in 2009, which included the US dollar, South African Rand, and other foreign currencies, brought temporary stability but ultimately failed to address underlying economic issues.
The Zimbabwean government’s propensity for currency experimentation has created a culture of uncertainty, discouraging foreign investment and hindering economic growth.
The frequent changes have also imposed significant costs on businesses and individuals, who must adapt to new currencies and exchange rates.
Only a week ago, we heard reports of major retail chains – OK Zimbabwe, Pick n Pay, and Spar – threatening to shut down their operations in Zimbabwe due to these currency discrepancies.
They are being forced to use the government-imposed exchange rate for local currency transactions.
Yet, when the need to restock arrives – where their suppliers demand payments in the greenback – they purchase the USD on the parallel market, where it is trading at around ZiG40.
This is because the USD is not readily available on the official market.
The government’s command and control approach to the economy has been identified as a major contributor to Zimbabwe’s currency crisis.
By interfering with the exchange rate, the government creates an artificial market that benefits some at the expense of others.
This has witnessed the proliferation of arbitrage – whereby those with power can easily access foreign currency on the official market and then resell it on the black market for a handsome profit.
This manipulation erodes trust in the local currency, driving citizens to seek more stable alternatives like the US dollar.
For instance, the RBZ’s decision to maintain an overvalued exchange rate has encouraged imports, exacerbated trade deficits, and depleted foreign exchange reserves.
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Conversely, a freely floating exchange rate would allow the market to determine the currency’s value, promoting exports and attracting foreign investment.
The latest RBZ announcement has reignited fears of hyperinflation, which previously rendered Zimbabwe’s currency virtually worthless.
In 2008, Zimbabwe’s inflation rate peaked at 89.7 sextillion percent, making it the highest in the world at the time.
Basic goods became unaffordable, and citizens struggled to survive.
As Zimbabweans scramble to exchange their ZiG for USD – after the recent RBZ devaluation announcement – the local currency’s value will likely continue to plummet.
With the USD scarce in official channels, citizens will turn to the black market, fuelling illegal foreign currency trading.
This underground market not only undermines the government’s monetary policy but also perpetuates corruption and inefficiency.
Dollarization, which began in 2009, has stripped Zimbabwe’s central bank of its ability to regulate the economy through monetary policy.
Without control over interest rates or money supply, the government can not effectively respond to economic challenges.
The widespread use of foreign currencies has also limited the RBZ’s capacity to implement quantitative easing or other expansionary monetary policies.
This restriction forces the government to rely on fiscal policies, which can be less effective in stimulating economic growth.
To restore stability, Zimbabwe needs to adopt a more market-oriented approach, allowing the exchange rate to float freely.
The government should reduce government spending to 20% of GDP, increase tax revenue through efficient collection, and broaden the tax base.
This requires fiscal discipline, whereby the government must prioritize budgetary restraint, reducing deficits and promoting savings.
There is an urgent need for political will in which policymakers must commit to economic reforms, resisting the temptation to manipulate the currency for short-term gains.
Zimbabwe also needs a genuinely independent central bank where the RBZ operates autonomously, whilst setting monetary policy without government interference.
Protecting the bank from political interference will enable effective monetary policy implementation and foster credibility and confidence in the central bank.
This central bank independence can be achieved by amending the RBZ Act to guarantee independence, thereafter appointing a board of experienced, independent directors.
In so doing, there will be transparent decision-making and communication, which should establish clear, measurable monetary policy objectives
Then, there is a need for real structural reforms, where Zimbabwe addresses underlying economic issues, such as infrastructure deficits, bureaucratic inefficiencies, and regulatory barriers.
Zimbabwe should seriously explore alternative currency options, such as joining the Common Monetary Area (CMA) Rand Zone.
The CMA, comprising South Africa, Namibia, Lesotho, and Swaziland, offers a stable and well-managed currency, the South African Rand.
This will provide a stable and well-managed currency and eliminate exchange rate risks.
At the same time, this will increase trade and investment with CMA member states whilst also enhancing regional economic integration.
In conclusion, Zimbabwe’s currency crisis is a symptom of deeper issues – inconsistent policies, government control, and a lack of trust.
To break this cycle, the government must relinquish control and allow market forces to shape the economy.
Only then can Zimbabwe build a stable financial foundation, restore faith in its currency, and unlock its economic potential.
The RBZ’s decision to maintain an overvalued exchange rate may provide temporary relief but will ultimately exacerbate the crisis.
It is time for policymakers to adopt a bold, market-oriented approach to monetary policy, embracing the challenges and opportunities that come with it.
To address the deep-seated issues plaguing Zimbabwe’s currency, the following comprehensive reforms are necessary.
These measures will what will finally move our country forward.
Zimbabweans are sick and tired of poverty, which can directly be linked to a perennially unstable currency and economy.
We deserve better.
The government now needs to be seen to be sincere in its desires to see a prosperous Zimbabwe.
Mere talk on its own will never solve the myriad of challenges we face every day.
Let’s stop seeing ‘detractors’ in every corner.
The main ‘detractor’ and ‘enemy’ of the people of Zimbabwe has been the government itself.
© Tendai Ruben Mbofana is a social justice advocate and writer. Please feel free to WhatsApp or Call: +263715667700 | +263782283975, or email: [email protected], or visit website: https://mbofanatendairuben.news.blog/