The Sunday Mail
Insight
The adoption of the multi-currency system in 2009 saw millions of Zimbabwean dollar accounts for both corporates and individuals being frozen. To date, they have not been repaid. What is interesting is that the valueless Zimdollar, which was no longer relevant to the economy, continued as legal tender for the years to follow, only to be demonetised late last year, in the Finance Minister’s 2014 National Budget.
According to Section 41(1) of the Reserve Bank of Zimbabwe Act, “A tender of a banknote which has been issued by the Bank and which has not been demonetised… shall be legal tender.”
It is for this reason that the Zimdollar remained a legal tender.
The pronouncements by the Finance Minister in his 2014 National Budget presentation in Parliament late last year — that, “It is imperative, Mr Speaker Sir, that the Zimbabwe dollar is demonetised” — therefore killed the Zimdollar indefinitely.
Prior to the demonetisation of the Zimdollar, there were various legal and economic complications arising from labour disputes emerging from the Zimdollar era, especially on the issue of compensation.
Most employers were proposing to settle labour costs in Zimdollars since it was still regarded as legal tender.
However, the demonetisation of the Zimdollar and the recent Supreme Court ruling that workers who were awarded damages for labour disputes in Zimdollars after the introduction of the multi-currency will now get paid in foreign currency, brought new remarkable dimensions which ought to be carefully dealt with.
In its ruling, the Supreme Court proffered that, “The matter is remitted to the court a quo to exercise its equitable jurisdictions in determining the question of conversion of the back pay into foreign currency and applicable rate.”
What this now means is that employees with disputes with their employers arising from the Zimdollar era, who were previously being discouraged from pursuing their cases by the futile Zimdollar awards, now have an incentive for them to approach the courts seeking recourse.
This may apparently open floodgates of related cases, as many dismissed employees have fallen on hard times and could use that extra dollar.
The plight of many dismissed employees has been accurately captured by Sydney Kawadza, in his feature on Mutorashanga published on June 5, 2014 in The Herald when he said, “The days when mine workers… would compete to buy the best groceries seem to have also gone with the wind. Today they hold on to every (US) dollar in the hope of getting more. But the (US) dollar is hard to come by. Life is hard.”
Kawadza was just spot on there. Against the above background, aggrieved workers who were unfairly dismissed during the Zimdollar era will therefore surely try their luck at the labour courts.
What is now tricky amidst all this is the establishment of an appropriate “applicable rate,” as ordered by the Supreme Court to govern the award system.
What exchange rate should be used to compensate an employee who has been previously awarded Z$10 trillion?
The differing exchange rates during that time, as well as the ridiculous official exchange rate on the eve of dollarisation might present significant challenges which might result in catastrophic economic consequences.
In April 2008, Government introduced a willing-buyer willing-seller exchange rate management system with a view to restoring exporter viability.
Through this system, the exchange rate would be determined on the inter-bank market on a willing-buyer willing-seller basis.
By January 2009 the official exchange rate was US$1:Z$22, whereas the parallel market rate was US$1:Z$2 trillion.
There was also another exchange rate, the United Nations exchange rate, which was mainly used by the UN System and non-governmental organisations in Zimbabwe.
The UN operational rate of exchange as at November 14, 2008, which was the last record, was US$1:Z$35 quadrillion.
If the official exchange rate is to be used, it means that the employee who was awarded, say, Z$20 billion will have to be paid a whopping US$909 million.
Imagine what will happen if a thousand cases like that sprout?
This will threaten the very existence of our economy, already battling with a serious liquidity crunch.
When Government demonetised the Zimdollar last year, it was somehow proactive on how to handle the account balances, although the issue of exchange rates still remained awkward.
Presenting the 2014 National Budget, the Finance Minister said, “Zimbabwe dollar balances, including Zimbabwe dollar Paid-Up Permanent Shares (PUPS) balances, are converted to US dollars for those accounts in financial institutions’ books as at 31 January 2009.
“This measure… will go a long way in compensating the public who lost their money as a result of hyper-inflation. Mr Speaker Sir, an indicative amount of US$20 million is required for this purpose.”
The question one might die to ask is: what exchange rate did Government use to arrive at this “generous” figure of US$20 million?
The precedent coming from the exchange rate that shall be determined by the Labour Court may also guide the conversion rate for the Zimdollar account balances that were frozen in 2009.
Dealing with account balances is also difficult in that some account holders were “burning” foreign currency during those days and had enormous bank balances.
What mechanism will be used to weed them out or will they benefit along with those who were earning their money legitimately?
What is undeniable amid all this is that the need to deal with the Zimdollar account balances is now uppermost and coming up with an appropriate applicable rate is certainly an issue of particular concern.
Using the ridiculous official rate obtaining during that time will definitely have adverse economic consequences, as it will render many companies, already facing many operational challenges, bankrupt.
Even the parallel market rate will still not do the trick. In order to safeguard our hitherto economic gains, and to sustain the liquidity situation, it will be best to use the UN exchange rate of US$1:Z$35 quadrillion.
This exchange rate is ideal in that it will bring fair compensation while also safeguarding the liquidity situation from worsening.
Another alternative to deal with Zimdollar account balances or labour awards arising from the Zimdollar era is to introduce a new local currency to settle them.
The new currency will be introduced along with a guaranteed market for certain goods such as residential stands, mining claims, and other Government resources.
With the passage of time, the new money will chase other basic goods as confidence in it grows.
This will not only jump start the economy, but will also reinforce the dollarisation system which seems to be facing challenges in moving our economy further.
