Zim running out of US dollars

By John Kachembere and Ndakaziva Majaka

Despite the shrill official propaganda to the contrary, Zimbabwe’s economy is continuing on its steep decline — with the latest manifestation of this implosion being the alarming disappearance of the much sought-after United States dollars from the market in recent weeks, with devastating consequences for the country.

This latest dose of bad news to hit long-suffering Zimbabweans comes as economists have recently reaffirmed that average incomes in the country are still hovering at their lowest levels in more than 60 years, with the majority of families having to make do with less than $200 a month.

Reserve Bank of Zimbabwe governor, John Mangudya, confirmed to the Daily News yesterday that Zimbabwe was witnessing a drastic shortage of American dollars, blaming rampant externalisation of the coveted greenback for the crisis.

Banking sources also said last night that the critical shortage of the US dollar had escalated ever since the central bank introduced bond notes into the market in November last year, as President Robert Mugabe’s stone-broke government desperately sought to mitigate the country’s crippling cash and liquidity crisis.

“It is a fact (that US dollars have disappeared). Nowadays we are importing small denominations because externalisation is high …. smaller notes make externalisation more difficult,” said Mangudya, adding that “generally, in money laundering, people favour high value notes, and so banks are importing smaller notes”.

However, Mangudya also said the country had, at the same time, seen an increase in US$ deposits.

“We have seen a significant increase in US dollar deposits, and in terms of the money in circulation, we have more US dollars in the system compared to bond notes.

“So, people should not be alarmed with the disappearance of high-value notes. It is just one of the measures being implemented against externalisation,” he told the Daily News.

But banking sources said while the $100 and $50 notes had started disappearing at the beginning of the country’s cash crisis, around May last year, the shortage had escalated following the release of the bond notes.

The chief executive of the Zimbabwe National Chamber of Commerce (ZNCC), Takura Mugaga, also told the Daily News yesterday that the disappearance of high-value US dollar notes was being caused by externalisation, pointing out that people were also using the greenback as a store of value.

“You need to note that most people are holding US dollars in their homes and not depositing them, as they seek a strong currency to hold on to,” he said.

But former Finance minister, Tendai Biti, said the disappearance of the high-value US dollar notes was “a direct result of a government-instituted grand theft”.

“What the government is doing through bond notes is that they are swallowing legitimate US dollar balances in the system and stealing the US dollars.

“If you go to the bank and your balance is US$200, but you get 100 Bond and $100, what has happened to the other $100?” he queried.

“We are experiencing what is known as Gresham’s Law, where bad money is replacing good money in the system,” the People’s Democratic Party leader added.

A senior economist with risk and analysis firm IHS Global Insight, Alisa Strobel, added that “the increase of uncertainty over the impact of bond notes to the Zimbabwean economy, and fears we could see a repetition of 2009’s hyperinflation, bodes ill for the economy across the board”.

Although Zimbabwe introduced a multi-currency system in 2009, including using the South African rand and recently the Chinese Yuan, almost all Zimbabweans prefer the greenback to the other currencies.

Prominent economist, Ashok Chakravarti, said recently that a whopping $358 million in cash had been siphoned out of the country in the past five years alone.

He also told a Confederation of Zimbabwe Industries (CZI) gathering in Harare late last year that greenback banking deposits had declined from $627 million in 2010 to $269 million last year.

“We have about US$269 million in banks, which is about six percent of total bank deposits. Cash in the system has depleted compared to deposits … There has been genuine externalisation. You need to have a non convertible currency to stop externalisation. If you need this country to move you have to have a currency which cannot be externalised,” he said.

And as Zimbabwe’s economy continues to die, the World Bank last year downgraded the country from its list of improved economies to the unflattering tier of struggling countries, as Harare’s political and economic turmoil continues to escalate.

In its publication titled Africa’s Pulse, the Bretton Woods institution said the country had failed to register significant economic growth over the past few years.

“Zimbabwe’s fiscal deficit has deteriorated as remedial actions have been limited and this has resulted in the country registering a negative correlation between the cyclical components of government consumption and GDP,” it said.

Economists say poverty levels have reached “numbing levels”, amid indications that the situation will worsen in 2017, as Mugabe’s Zanu PF government continues to demonstrate its inability to fix the rot. Daily News