With The New ZWL $10 Banknote Worth Just US$0.25, Is RBZ Serious?
by Guest AuthorIs RBZ Serious? | Terence Zimwara
The Reserve Bank of Zimbabwe (RBZ) last week came through with its promise to issue higher denominated banknotes, with the first of these, the ZWL$10, coming into circulation on last Tuesday. This follows a statutory instrument issued a week earlier which gave effect to the new banknotes.
The RBZ hopes that the new banknotes will alleviate the cash shortages without destabilizing the foreign currency markets.
But just how much are the new banknotes worth in real terms and will they do the job? To understand the significance (or lack thereof) of the new banknotes, one has to go back to late 2016 when RBZ rekindled the Zimdollar 2.0 project.
The first Zimbabwe Dollar collapsed in 2008 when the country went through its worst hyperinflation period. In 2009, the authorities finally threw in the towel and formalized the use of foreign currencies through what they called the multicurrency system, with the US dollar being the most dominant and popular choice for many.
However, the use of foreign currencies rendered the RBZ a mere (almost) spectator in the economy. The monetary authorities could not intervene in the markets and more importantly, the central bank was no longer a source of easy money for the elite. Not surprisingly, efforts to restore the Zimbabwe Dollar started during the subsistence of the government of national unity (GNU) but these were largely thwarted by then Finance Minister, Tendai Biti.
The end of the GNU in 2013 signified an imminent return of the Zimbabwe Dollar.
Following unusually fierce resistance, the RBZ had its way, and Bond Notes came into circulation in November 2016.
At the time, the RBZ claimed these were at par with the US dollar yet the reality was that there never was parity between the two currencies from the get-go.
The initial disparity was marginal hence many businesses were happy to trade the minor exchange losses for the mirage of liquidity brought by the returned currency.
To illustrate, in late 2016, the highest denomination for the local currency was a $5 banknote (or Bond Note as it was called then) while inflation was largely under control as it had been since 2009. At the time, this banknote could buy a minimum of five loaves of bread, the same as would a US$5 bill.
Fast forward to 2020, the same Zimbabwe Dollar $5 banknote cannot even buy a quarter of a loaf. One now needs at least 7 of these local banknotes to buy one loaf of bread!
That is not even the true extent of the Zimbabwe Dollar’s depreciation if one takes into account the fact that the current price of bread is somewhat lower than what it was five years ago. Using the so-called parallel market exchange rate of 1:50, it means a loaf of bread costs 65 cents in real terms.
By the way, two things are responsible for this price, government subsidies on one hand and the losses that are being absorbed by bakers on the other.
Now using the same bread analogy, it is clear that the new $10 and $20 will not end long queues at banks or the general shortage of cash. You need at least four $10 banknotes to buy one loaf yet a note with half that value bought five loaves just 5 years ago. Even the $20 banknote cannot buy a loaf!
When using the official exchange rate of 1:25, it means the new $10 notes are worth US$0,25 though this drops down further to 10 cents when using the parallel market exchange rate.
Therefore the new notes are woefully inadequate to meet the actual cash demand. Shortages will persist and the practice of selling cash for a premium will continue as well.
Perhaps the scary part is that the new notes seem to be putting the beleaguered Zimbabwe Dollar under renewed pressure. Already (at time of writing) reports suggest the rate is dropping and parallel market dealers are quoting anything between 60 and 70 Zimbabwe dollars for a single US dollar.
RBZ must abandon its current course and return to a multi-currency regime if it hopes to stop the inevitable, a repeat of the 2008 crash.
Articles You May Want To Read
Ecocash Directive: RBZ’s Last Hail Mary As Economy Falters
EcoCash Is A Ponzi Scheme Which Is Devaluing The Zim Dollar: RBZ
How To Never Miss IHarare Latest News On Your News Feed Following Facebook’s New Algorithm
IMPORTANT NOTICE:Access LIVE News, Jobs and Exchange rates directly on WhatsApp. Send a WhatsApp message with the word HIE to +263718636522 or just CLICK HERE to try it out. iHarare is now a information one-stop-shop. Please click on the links highlighted in Red to access News, Events, Jobs, Pricecheck, Classifieds, Dating and Education services by iHarare.For any queries contact us by CLICKING HERE .