The Sunday Mail
The nonsense Zimbabwe saw in the first fortnight of September in foreign exchange markets, whose serious and unnecessary side-effects may well be felt for months, was an example of how a small number of people can cause mass panic and mass damage.
The Reserve Bank of Zimbabwe did eventually identify the principle source of the huge bubble that was created in the black foreign exchange market and blocked a handful of company bank accounts, thus pricking the bubble and slashing this street rate by more than a third overnight. So in the end decisive action worked.
But what would in a normal country have just been a minor episode of criminal greed, generated a far larger and more damaging explosion in Zimbabwe, largely because of the perception that “everyone thinks in US dollars” and that the black-market rate is somehow more real than the far larger and well-regulated interbank market. So even those who sell and buy forex in the interbank market were strongly influenced by the far smaller and messier black market.
This tendency of using the US dollar to measure value and of encouraging people to enter the black market to buy US dollars is seen daily with many businesses still quoting in US dollars, although those wishing to remain legal converting to Zimbabwe dollars at one of the two rates on the actual day of payment. And these businesses are willing to accept actual US dollar cash payments and subtly encourage customers to make their payments in that currency.
For many goods and services the foreign exchange component is far smaller than the total final cost, even when US dollar quotes are given. For example, taking the growing popularity of solar power supplies or solar powered equipment. It is easy to assemble a batch of quotes that include supply and installation of this equipment in US dollars although only the actual hardware is imported with all the other costs, including the skilled installation labour, the transport and the taxes are paid in Zimbabwe dollars.
It is also obvious from even a short stroll in a supermarket that some suppliers are thinking in US dollars and converting at the black market exchange rate of just before the bubble burst, while others, more honest, are adjusting to the interbank rate, although that was affected by the black-market bubble.
So besides the need for emergency action, the blocking of bank accounts by the RBZ, more encouragement was needed to get everyone thinking, buying and selling in Zimbabwean currency.
This is now being done with a pair of statutory instruments issued under the temporary powers granted to the President. One makes it a legal requirement that all dealings in the domestic market, including quoting, buying and selling, must be done in Zimbabwe dollars. This makes the buyer using US dollars just as guilty as the seller quoting in US dollars or selling in US dollars. The regulations are carefully drafted to close as many loopholes as possible in advance, but basically ban all ties to a foreign currency when pricing in a domestic transaction. Foreign visitors, embassies and some others are excluded from the regulations.
The second statutory instrument explains the teeth being used to enforce the ban on linking foreign currency to a domestic transaction, rather creatively using civil penalties imposed by the Reserve Bank. These are not criminal fines, leave no criminal record and cannot be delayed by inventive lawyers delaying everything in a court.
They are imposed almost instantly, although there are things like 48-hour delays for explanations, and can be enforced through civil court orders. This detailed statutory instrument makes a significant difference between transactions that can be reversed and those that cannot, with far higher penalties for those that cannot. This is done to encourage everyone to move rapidly when told that they are now breaking the law.
And in an interesting move that should make everyone take the new moves very seriously, the officers of any company can be made individually liable along with the actual business for the civil penalties. This means that people like chief executive officers, chief financial officers and the like can be made to pay the penalties along with their company and prevents those businesses where money is hurriedly moved out of corporate accounts into personal accounts from winning.
None of these moves by President E. D. Mnangagwa and his economic advisors would have been needed if Zimbabwe was one of those normal countries, in fact most of the world ranging from Australia to Zambia, where people think and operate in their own national currency, or supranational currency if they are in some regional monetary union.
The new statutory instruments here will not affect in any way those businesses that price according to actual costs in Zimbabwe dollars, following in fact proper accounting standards as well as the law. They will probably be the winners, while those who have been manipulating markets are forced to conform or to go out of business. It is the cowboys who will now face the law and a Reserve Bank with big sharp teeth.
Zimbabwe’s journey to normalcy, a journey that was progressing well until the September manipulated meltdown, cannot be delayed or derailed by a handful of greedy people panicking a far larger group into lemming-like suicide. We can no doubt expect more interventions like we have now seen. And getting people to think Zimbabwe, rather than US, is vital for our progress.