Zimbabwe’s Black Market, Where the Dollar Trades Against Itself

In Zimbabwe — the country that once suffered 500 billion percent inflation — one dollar may now cost you as much as $1.07.

Source: Zimbabwe’s Black Market, Where the Dollar Trades Against Itself – Bloomberg 

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 foreign currencies to avoid exactly that sort of unofficial trading. The cash crunch 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 multi-currency system in 2009 after its economy collapsed in the wake of a campaign to seize white-owned commercial farms and hand them over to black subsistence farmers, triggering a near decade-long recession as exports from tobacco to roses slumped. As well as the dollar, the country allows the use of currencies including the South African rand, the yuan, the pound and the euro. While that tamed inflation — said by the International Monetary Fund to have reached 500 billion percent in 2008 — it also left the government short of cash to pay civil servants and buy essential imports.

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

“The black or parallel market will worsen when bond notes begin to circulate,” said Kipson Gundani, chief economist with the National Chamber of Commerce in Harare, the capital. “Why? Because Zimbabwe is a net importer and bond notes can’t be used to settle invoices abroad. With no cash in the banks, importers will be forced to look for greenbacks on the black market.”

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

Money Transfers

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

The system worked well, and sidelined money transfer businesses like Western Union, Moneygram and Mukuru. But then last month, Gureva’s friend in Harare deducted 5 percent. The rand equivalent of $1,500 became $1,425 — a big difference in a country where as many as 70 percent of people live on less than $2 a day, according to the UN.

Trading the dollar against itself could lead to inflation, according to Harare-based independent economist John Robertson.

“We already have people trading the dollar at a premium,” he said. “We don’t know where the money has gone, but there’s a probability that government used the bulk of it in trying to settle its International Monetary Fund loans, then there’s the huge civil-service wage packet,” which accounts for 80 percent of government spending, he said.

Raised Prices

Gureva isn’t 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, because my steel supplier is now accepting only hard cash and has already warned me that they won’t accept bond notes. So, now I’ve raised my prices 7 percent, but will I be able to sell? I’m doubtful.”

Capital flight, money laundering and rising imports have forced the central bank to double its purchases of dollars to $40 million a month, Governor Mangudya told a conference in Harare last month. The government is delaying, and staggering, civil-servant salary payments to alleviate the cash crunch, while the central bank said this week it will cancel licenses of banks found to have violated exchange-control regulations.

One solution would be for the country to use the South African rand as its primary currency, Charity Jinya, president of the Bankers’ Association of Zimbabwe, told lawmakers in Zimbabwe’s capital Monday. Currently the U.S. dollar accounts for about 95 percent of trade, she said. South Africa is Zimbabwe’s biggest trading partner, according to the central bank, accounting for 22 percent of imports.

For now, that makes little difference to people like Chiweshe and Gureva.

“It’s strange, really strange,” Gureva said. “The dollar has an exchange rate against the dollar. How is that possible? I think it’s another Zimbabwean first.”

COMMENTS

WORDPRESS: 7
  • comment-avatar
    R Judd 6 years ago

    The essential ingredient in this new crisis is exactly the same as the last crisis. The ZANU government cannot keep its hand off other peoples money

  • comment-avatar
    IAN SMITH 6 years ago

    THIS IS EXACTLY WHAT HAPPENS WHEN THE WHITE MAN IS DRIVEN OUT AND CITIZENSHIP MEANS JACK SQUAT.

    THIS IS AFRICANIZATION SO IT IS JUST NORMAL IT’S BEEN FALLING FOR THE LAST 36 YEARS WITH THE SILENT EXODUS OF THE WHITE MAN THEN THE COLOURED MAN THEN THE NDEBELES NOW THE SHIFTY SHONAS MANY JUST DIE, DUE TO THE COLLAPSE OF MEDICAL INFRASTRUCTURE.
    THE INDUNAS FLY AWAY ON THE WHITE MANS AIR PLANE TO SINGAPORE AT $4000000 US /TRIP NO SWEAT F—- U ALL NO WORRIES THANK YOU VERY MUCH???

    • comment-avatar
      Mazano Rewayi 6 years ago

      Mr Smith, this has nothing to do with race or tribalism. This is what happens when a group takes over a system, a government in this case, when they are not prepared for it and are not willing to learn how the system works before making decisions. The communists in Europe were not black, it took them 50 years to realize that the economy cannot be run on ideology, legislation and force. Pol Pot was not black, he learnt the hard way that skills cannot be replaced by enthusiasm. In much of Latin america especially Bolivia, Venezuela and Nicaragua, the lesson has sunk in that populism and good intentions alone do not sustain an economy. The Chinese are not black, it took them the excesses of the “Cultural Revolution” and the folly of the “Great Leap Forward” to realize that the laws of economics are universal and must be obeyed. Ours is a steep learning curve only that the current drivers are in the Mao, Pol Pot, Noriega, Chavez, Castro mode. It’s not because they are African or Shona, its’s just that they are ideological dinosaurs cum financial illiterates who are driven by a warped sense of self grandeur. All of us need to unite to get rid of them. We can only achieve this goal if we do not promote petty divisions like race and ethnicity, sarcastically or otherwise.

      • comment-avatar
        Pakaipa 6 years ago

        Well said Mazano. Its worrying that on this and a lot of other platforms people are bringing up issues of tribalism. Its really worrying, we must unite as Zimbabweans regardless of race and tribe. If we are to be honest there are also Ndebeles in Zanu PF that are messing up Zimbabwe. So its wrong to generalise and say Shonas have messed up. Lets unite and find solutions to the problems that we are facing

  • comment-avatar
    IAN SMITH 6 years ago

    The Shonas keep voting for THE SAME THUGS so what.

    Lets see if any of these start up parties have (CITIZENS BORN ON THE LAND) of all colors and tribes in the leadership.

    Zambia had a white VP look how they have progressed, now donating mealie meal to starving Zimbos THIS IS HARD TO SWALLOW???????

    IS Zimbabwe ready to elect the best MAN/WOMAN ( CITIZEN) for the job even if he or she is WHITE.?????????????

    WE CAN NOT BUT NOTICE THAT ALL THE COMMENTS ARE DEVOID OF THE TERM CITIZEN.

    IF NOT THEY NEED MORE SUFFERING.

    • comment-avatar
      Collin 6 years ago

      Vostek you post proper shirt you bloody racist tribal idiot.
      The very same white man is the one taking the money out of Zimbabwe.
      Why are they full and back in Zimbabwe since the usd.
      They someone’s crying foul because the bond note is being introduced and can only be used in Zimbabwe and if want the usd go to the bank just like in any bloody country.
      We not have a free for all .
      People are crossing into south Africa with hardcore cash no tax paid and buying cars cash people.
      The very same whites are sending rands to Zimbabwe in exchange of of the usd
      Please for once Zimbabweans wake up break back the Zimbabwe dollar or bond note.

      Which African countries that tried using the dollar has taken?just look at Zambia today they tried it and it never worked.

      Stopped being fooled by stupid political parties and those whites with an agenda and don’t want to see Zimbabwe a better place.
      Why should use the usd can we not use the Zimbabwe $or the so called bond note or even the Niria and see if they ever be a cash shortage ever again in Zimbabwe.

      We see this everyday people banking dollars in SA from Zimbabwe.
      Why give a time frame just introduce period you are giving them time to take the little that’s there out
      Wake up Zimbabwe

  • comment-avatar

    You’ve very good thing right