By Alex Bell
SW Radio Africa
30 January 2014
The introduction of four new foreign currencies as legal tender in Zimbabwe has been described as a ‘non-starter’ that could cause chaos in the commercial sector.
The Reserve Bank of Zimbabwe (RBZ) announced Wednesday that the Chinese yuan, Japanese yen, Indian rupee and Australian dollar will be accepted, with Zimbabweans and exporters able to open accounts in the various currencies.
Zimbabwe’s multi-currency system, adopted in 2009 to override the worthless local dollar, means the US dollar, South African rand, Botswana pula and British pound are already considered legal tender. The majority of Zimbabweans primarily use the US dollar and South African Rand, while import prices are mostly set at the US value.
But an increase in trade, mainly with the Eastern market, means more currencies will technically be considered legal tender this year.
“Trade and investment ties between Zimbabwe, China, India, Japan and Australia have grown appreciably,” said RBZ acting governor Charity Dhliwayo.
Dhliwayo added: “It is against this background of growth in trade and investment ties that in the 2014 national budget, the minister of finance and economic development underscored the importance of including other currencies in the basket of already circulating currencies.”
Concern has been raised about the potential chaos this could cause for many Zimbabweans, with cash shortages and fluctuating exchange rates adding to an already difficult economic climate.
Most recently, SW Radio Africa reported how Zimbabweans have started abandoning the use of the neighbouring rand, because of its falling value.
The potential for more chaos is now high, with multiple currencies and exchange rates posing fresh challenges for the average trader.
Economist John Robertson told SW Radio Africa that the “whole idea will fall very flat,” with the majority of people, who will likely keep using the US dollar.
“We don’t need these other currencies. The country prices most of its imports and exports in US dollars and that is what people want to be paid in. The only exception is the rand, especially in the southern part of the country,” Robertson said.
He added that the potential confusion for local traders means it is unlikely that the other currencies will be welcome. The economist explained that on top of valuing their items according to the new currencies, most traders would eventually have to convert the money into US dollars anyway. They would then have to pay an additional conversion fee at the banks, in order to pay for new goods imported using the US value.
“So I think most traders will be very annoyed if people start using the new currencies, and I think you’ll see in a few months that people will say it’s not working,” Robertson said.
Economic analyst Vince Musewe meanwhile agreed that the average Zimbabwean is unlikely to be affected much by this development, because the preferred currency will remain the US dollar. He said the basis for the RBZ decision was driven by the government’s ‘Look East’ policy.
“The idea is that it makes it more attractive for them (Eastern traders) to come to Zimbabwe and do business in Zimbabwe. So for example someone from China, which is a major investor at the moment, can come to Zimbabwe and use their own currency,” Musewe said.
He said the changes will likely only be seen at Chinese markets and shops, but for general Zimbabwean traders “their way of doing business is not going to change because people will still use the US dollar.”