“Our Dollars Have Been Stolen!”

Posted | 01/07/2019 / Views | 3522
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As reported by Zero Hedge last week, the Zimbabwean Government has backflipped on its policy of USD priced goods and services in support of its own central bank issued currency… And Zimbabweans are fuming.

Last week the Zimbabwean Government moved to ban the use of foreign currencies which were previously used to stabilise the failing economy after coming out of a complete collapse into hyperinflation just over a decade ago. Hyperinflation in Zimbabwe was a period of currency instability that began in February 2007. During the height of inflation from 2008 to 2009, it was difficult to measure Zimbabwe's hyperinflation because the government of Zimbabwe stopped filing official inflation statistics. However, Zimbabwe's peak month of inflation is estimated at 79.6 billion percent month-on-month, 89.7 sextillion percent year-on-year in mid-November 2008. The result was the 100 Trillion Dollar note, which highlighted the ridiculous nature of the chaos that had unfolded.

“Our Dollars Have Been Stolen!”

 

In 2009, Zimbabwe stopped printing its currency, with currencies from other countries being used to replace it. Primarily this was the US Dollar, used for around 90% of all transactions, and the South African Rand, used for around 5%. This resulted in much needed stability as Zimbabwe attempted to rebuild from the complete collapse, but this period has ended abruptly with the reintroduction of the “ZimDollar” announced last week. 

 

Here is President Mnangagwa’s full statement (released on his official Twitter account) about the reintroduction of the Zimbabwean Dollar:

 

It has always been clear that for our economy to truly take off, we need our own currency. While the multicurrency regime helped to stabilise the economy, it did not give us control of monetary policy and left us at the mercy of US Dollar pricing which has been a root cause of inflation.

When the majority earn in the local currency, but goods are priced in US dollars, the outcome will only ever be a two tiered economy: Stable and affordable prices for those with access to dollars, while the majority face an unrealistically high cost of living. This is unfair and unsustainable.

Before we could have our own currency, it was however important that key fundamentals were first put in place. Central to this was regaining control of our budget, through decreased spending, increased revenues and, for the first time in recent memory, budget surpluses. Under the careful guidance of Professor Ncube, this has been achieved.

As a result, yesterday we passed a Statutory Instrument to abolish the use of multiple currencies, and make the Zimbabwe dollar the sole legal tender with immediate effect. This is a key component of our transitional stabilisation programme, and an important step in restoring normalcy to our economy.

Government and the RBZ are taking the necessary steps to ensure this move is a success, through increasing the flow of forex into the interbank market while also making forex available to individuals and small businesses through bureau de changes.

On a day to day basis, this will change very little. People will still be paid in RTGS dollar and bond notes, and goods and services will be priced in the same currency. Those holding Nostro accounts will still have access to those accounts in the currency they held.

The only way forward is to reform so that we build a country in which all have the opportunity to prosper. We cannot be fearful of change, but must boldly embrace it as we move forward. The conditions are in place for Zimbabwe to have its own currency. Let us all work together, as one people, to make it a success.

 

Like most official government announcements, on the surface this might make sense and even result in cautious optimism that things may have improved to such a degree that this is now the best path forward. But quietly alongside this, the Reserve Bank of Zimbabwe (RBZ) has issued a directive banning cash withdrawals from all Foreign Currency (FCA) Nostro Accounts following the promulgation of Statutory Instrument 142 of 2019, which reintroduced the local Zimbabwe Dollar and scrapped the multi-currency regime. Nostros/FCA holders will have to liquidate their balances to be usable in Zimbabwe.

Previously the minister of finance, Mthuli Ncube and the Reserve Bank of Zimbabwe Governor, John Mangudya promised that money in FCA Nostro accounts was safe and would not be touched. Here are the new rules however: “funds in all these accounts listed in Table 1 … where the holder of such an account intends to settle domestic transactions, they shall be required to liquidate their foreign currency account balances to the interbank on a willing seller willing buyer basis.”

“Our Dollars Have Been Stolen!”

What this essentially means is that if one earns USD, deposited into their Nostro account, they can’t draw the cash but will have to get it in ZimDollar using that day’s interbank rate.

 

The ZimDollar (black-market RTGS$ rate) has been falling into the news and accelerated beyond...

“Our Dollars Have Been Stolen!”

 

This is not the first time we have seen a government changing the rules overnight towards a new policy in “support” of the economy, and it won’t be the last. It is also easy to think “yes but this is happening somewhere else that doesn’t affect me directly”, but that is a dangerous assumption to make as many economies around the world experience “unprecedented” debt, trade turmoil, political instability… and the list goes on, that embolden governments and central banks to rewrite the rules, without notice, whenever they see fit.

The wise approach is to learn the lessons from this situation abroad and ensure that you have taken adequate steps to protect your wealth if something similar were to unfold closer to home.

In Zimbabwe, once again, the individual’s ability to accumulate wealth has been removed. Assets that are held by third parties can and are easily confiscated, one way or another. The solution is to be your own central bank and take control of your own wealth – time to get long Gold, Silver, Crypto… and wheelbarrows!

 

“Our Dollars Have Been Stolen!”