Zimbabwe three years after the end of hyperinflation
Battling With the Multi-Currency Regime
Ransford Mapuranga is a DVDs vendor who has learnt both the phase of the hyper-inflationary Zimbabwean dollar and the multi-currency system the hard way. “In 2008 alone the price of a single CD rose from Z$5 billion to Z$500 trillion due to inflation,” he said. However, the introduction of the multicurrency system improved Ransford’s lot. As a result of the introduction of this system, month-on-month inflation trends sharply declined from the rates of above 49 billion per cent to less than 1% since February 2009 until today.
“We can budget well now and it’s easy for me to do proper budgetary control as the prices do not change - in fact I have been buying my CDs and DVDs for the same price since the beginning of the year,” Ransford added. In a multi-currency system, transactions in hard foreign currencies are authorized and eventually prices are stabilised. “The multiple currency system has improved local producers’ credit worthiness, enabling them to negotiate flexible payment terms with suppliers, a factor that has significantly boosted local production” wrote journalist Martin Kadzere.
Despite the advantages, the system brought challenges that are causing disparities in product valuations. A 500ml fruit juice from Lyons costs US$0.50 or ZAR5 in Harare. However, US$0.50 is not equal to ZAR5 according to the official market exchange rate. So in Harare you can buy two 500ml fruit juices with a US$1.00 but in Bulawayo with that same dollar you will buy one fruit juice and get ZAR3 change. There is also a widespread shortage of coins for buyers to get change, and this shortage has distorted pricing. The retail sector has capitalized on this shortage and in most cases the public is forced to buy unwanted commodities. “I had to buy biscuits because the shop could not give me my US$0.50 change” grumbled Tapiwa Mudzingwa, a Harare resident.
This system is temporary and Zimbabwe eventually will have to adopt a permanent regime. One option is to fully adopt the dollar as the legal tender. Another is to join the Common Monetary Area which currently consists of South Africa, Lesotho, Namibia and Swaziland. In this system, Zimbabwe would adopt the South African rand as the legal tender, operating alongside the local currency, on a 1:1 exchange rate with the South African rand. The third option is to reintroduce the Zimbabwean dollar.
Although the government is in favour of adopting the South African rand, the economists see this as the worst idea as this entails the re-introduction of the local currency; something many are afraid would bring back the troubles of the 2008 hyperinflation. Sitting in his shop Randsford concludes: “Firstly we should stabilize the economy and then undertake the decisions about currency. For my own business the next currency experiment would be difficult to bear.”