US dollar trades against itself in Zim black market

IN ZIMBABWE – the country that once suffered 500 billion percent inflation – $1 (R15) may now cost you as much as $1.07.

A shortage of banknotes is resulting in a new black market more than seven years after Zimbabwe abolished its own money, the Zimbabwean dollar, and adopted the greenback and other currencies to avoid that sort of unofficial trading. The shortage of cash has intensified in recent weeks, according to central bank governor John Mangudya, forcing banks to limit withdrawals and shut down some ATMs.

Zimbabwe implemented a multicurrency system in 2009.

As well as the dollar, the country uses of a range of currencies including the rand, the yuan, the pound and the euro. While that tamed inflation it also left the government short of cash to pay civil servants and buy essential imports.

Bond notes

In desperation, Zimbabwe’s central bank said last month that it would introduce legal tender it called “bond notes”, pegged to the US currency, a plan that drew scorn from critics who said it would simply force importers and remittance-senders to the black market. It also means dealers are effectively trading the dollar against itself.

“The black… market will worsen when bond notes begin to circulate,” Kipson Gundani, the chief economist with the National Chamber of Commerce, said. “Why? Because Zimbabwe is a net importer and bond notes can’t be used to settle invoices abroad.”

With about 3 million citizens out of a population of 14 million living abroad, according to the UN, Zimbabweans have devised inventive ways of sending money to family members at home.

Money transfer

Patson Gureva, a manager with a South African bank, tries to send $1 500 a month to his mother in Zimbabwe. Gureva has a friend in Harare who imports vehicle parts from South Africa, so Gureva pays his friend’s supplier in Johannesburg in rands and Gureva’s friend hands the equivalent in dollars over to his mother.

The system worked well, and sidelined money transfer businesses such as Western Union, Moneygram and Mukuru. But then last month, Gureva’s friend deducted 5 percent. The rand equivalent of $1 500 became $1 425.

Gureva was not the only one paying a premium for hard cash. Samuel Chiweshe, who manufactures garden furniture and relies on imported raw materials, had a similar experience. “That 5 percent rate is lucky,” Chiweshe said. “I just paid $1.07 per dollar for a $2 000 transaction. So, now I’ve raised my prices 7 percent, but will I be able to sell? I’m doubtful.”

One solution would be to use the rand as its primary currency, Charity Jinya, the president of the Bankers’ Association of Zimbabwe, said. South Africa was Zimbabwe’s biggest trading partner, according to the central bank. For now, that makes little difference to people like Chiweshe and Gureva.

Gureva said: “The dollar has an exchange rate against the dollar. How is that possible? I think it’s another Zimbabwean first.” – Bloomberg