Hyperinflation fear grips Zim again
CRISIS: TREASURY BUYS US DOLLARS WITH ’ZOLLARS’
Worries government is printing ‘zollars’ without sufficient reserves or gold.
Harare
After defying economic gravity for a year, Zimbabwe’s homemade US dollars have fallen to earth with a bump. Rumours the central bank was buying up black market US dollars last month with one of its own versions of the currency created panic in a country scarred by the hyperinflationary spiral of 2008 that wiped out people’s savings.
The worthless Zimbabwe dollar was replaced by the US dollar in 2009, but the economy has struggled over the last 18 months because of a massive domestic shortage of greenbacks. As a result, cash has enjoyed a steady 10% to 20% premium over dollars stored electronically in bank accounts – nicknamed “zollars”.
But two weeks ago, rumours that even the central bank had run out of hard currency sent the premium soaring to nearly 50%, according to black market traders and unofficial measures of the zollar value. “I am really scared I will wake up one day and find my money in the bank is worthless,” said Jethro Nkosi, a computer technician in Harare.
The central bank has not published currency reserves since dollarisation and Zimbabweans worry it is creating zollars without the backing of sufficient reserves or gold, leaving the system vulnerable to a confidence crisis.
On Friday, buying $100 in cash via a bank transfer cost 145 electronic zollars, an improvement on 160 last week. But on September 23, when rumours of the central bank buying black market dollars swept Harare, the rate spiked to 185.
The price of goods has also leapt as importers turn to an increasingly unfavourable and risky black market to pay for the wares. In one week, the cost of cooking oil, cereal and butter imported from South Africa leapt by 30%.
One Harare banking source said the Reserve Bank of Zimbabwe’s (RBZ) Fidelity Printers and Refiners division sparked the panic two weeks ago by offloading a large quantity of dollar “bond notes” to buy gold from smallscale mining firms. When the newly-minted notes, nicknamed “bollars”, hit the streets, currency dealers assumed the central bank was mopping up greenbacks from the black market, sending the value of real dollars soaring.
Bond notes are the third form of dollars used in Zimbabwe, besides cash and zollars. Like their electronic counterparts, the quasi-currency notes are meant to be equivalent to dollars issued by the US Federal Reserve, but they are now worth less. The notes, backed by an opaque $200 million loan facility from the Cairo-based Afreximbank, were introduced in November. This week they were trading at 1.3 to the dollar.
The banking source said RBZ’s Fidelity, Zimbabwe’s sole gold trader, was paying mining firms for gold 60:40 in dollars and bond notes, compared with only dollars a month ago and that had fuelled suspicions the RBZ was running out of hard currency. But Reserve Bank of Zimbabwe Governor John Mangudya denied Zimbabwe was locked in another currency crisis. He said the bank was spending $1 million in bond notes a week to buy gold, but that should not affect currency market values.
However, the situation is fluid. To try to prevent a run on the banks, the government has tried to kill the black market, with decrees stating that illegal currency traders face up to 10 years in prison.
Assessing the true value of zollars is difficult but economists have revived a gauge used during the hyperinflation era – the Old Mutual Implied Rate – which compares share prices of OM traded in Harare and London. As the central bank rumours swirled last month, the premium for Harare shares over their London counterparts surged, meaning Zimbabweans need far more electronic dollars to buy the shares than someone in London using ordinary US dollars.
Besides trying to get hard cash, Zimbabweans are converting zollars into cars or property, or piling into the stock market in the hope shares will hold value even if their bank balances are obliterated. – Reuters
I am scared I’ll find my money in the bank is worthless.