The entrenchment of the multi-currency system in law as announced by the Finance and Economic Development Minister, Prof. Mthuli Ncube this week could have signaled the final leap into full-scale dollarization of the local economy.
Previously the pricing in foreign currency was anchored on a Statutory Instrument 85 passed in 2020 which allowed foreign currency to be used as legal tender in conducting local transactions.
The development is likely to complicate government plans to de-dollarize the economy and consolidate the ailing local currency.
Despite the informal economy having predominantly dollarized for some time now, the new measures seem to have pushed the formal players into demanding for the greenback. This is reflected in some formal retail and wholesale operators now demanding payment in USD only.
The development comes as a huge blow to consumers who mostly get their wages in the local currency.
Most employers use the official rate currently at ZW$367.2153 as point of reference for salaries yet consumer prices either track the parallel market rate or demand strict USD payments.
A visit to some retail shops around Harare central business district this morning picked that some commodities such as rice, sugar and cooking oil were not payable in the local currency.
According to one shop manager, “We are pricing in USD only to satisfy our suppliers who are demanding forward payment in USD. Otherwise they don’t supply us.”
There are reports that some producers are supplying informal traders particularly in down town Harare who pay in USD.
The situation has been worsened by failure by the Central Bank to pay producers of basic commodities adequate foreign currency from the auction system.
This has increased the number of companies sourcing foreign currency from the parallel market.
Interestingly, renowned economist, Prof Gift Mugano earlier this year projected that by June the country will have fully dollarized taking into account the rapidly deteriorating lack of confidence in the local currency at the time.
“The market is the final arbiter on dollarisation. We read the market trends that is why we can tell in advance that the market is dollarising in June 2022. No amount of statutory instruments nor press statements can silence the market,” reads Prof Mugano’s tweet.
Authorities have been desperately coercing the market to accommodate the local currency by issuing various Statutory Instruments, a task that is clearly not working.
The last time the local currency precipitated at current levels was at the beginning of its demise in 2007.
The new measures have not come out clear on businesses that do not accept the local currency.
It only speaks of penalties introduced for exchange rate violators who are in the habit of charging for goods and services in local currency prices tracking parallel market exchange rates.