Zimbabwe has effectively illegalised the use of the United States dollar and other currencies for transactions in the country, making the “Zimbabwe dollar.”

According to Statutory Instrument 142 of 2019, the Government has ‘re-introduced’ the Zimbabwe dollar (consisting of bond notes and the RTGS dollar), and declared it as the country’s sole legal tender.

The changes are with immediate effect.

Reads part of SI-142:

“The Minister of Finance and Economic Development has, in terms of section 64 as read with section 44A of the Reserve Bank of Zimbabwe Act (Chapter 22:15), made the following regulations: – Zimbabwe dollar to be the sole currency for legal tender purposes 2. (1) Subject to section 3, with effect from the 24th June, 2019, the British pound, United States dollar, South African rand, Botswana pula and any other foreign currency whatsoever shall no longer be legal tender alongside the Zimbabwe dollar in any transactions in Zimbabwe. (2) Accordingly, the Zimbabwe dollar shall, with effect from the 24th June, 2019, but subject to section 3, be the sole legal tender in Zimbabwe in all transactions.

“(3) For the avoidance of doubt it is declared that— (a) references to the Zimbabwe dollar are coterminous with references to the following and to no other forms of legal tender or currency— (i) the bond notes and coins referred to in section 44B of the Act; and (ii) the electronic currency prescribed for the purposes of section 44C of the Act, that is to say to the RTGS dollar; (b) the abovementioned bond notes and RTGS dollars are at par with the Zimbabwe dollar, that is to say each bond not unit and each RTGS dollar is equivalent to a Zimbabwe dollar.”

The move has effectively ended the multicurrency system that the country adopted in early 2009, after the economy had been ravaged in previous years by hyperinflation.

Finance and Economic Development Minister Professor Mthuli Ncube said the move was necessitated by a fast self-dollarizing economy, which was going to be unsustainable.

“What was happening in the market is that the market was self-dollarising. It was uncontrollable and we felt that we need to bring the situation under control. A few days ago I had a meeting with the association of teachers in this country as a union along with his Excellency as well as with the Ministers and they made it very clear to us that the multi-currency regime has become a US dollar regime and they do not earn the US dollars and cannot afford to buy things in shops, they cannot pay medicines and health care services when the hospitals and clinics are demanding US dollars.

Clearly, with the terrible situation, it became necessary for the Government to move faster and introduce a mono-currency regime with a domestic currency. The domestic currency obviously comprises of our RTGS dollar as before, as well as the bond notes and coins as before, so, nothing has changed wing in terms of what we are calling domestic currency on this occasion. All that has changed is that the only legal tender, domestic at the moment, is the domestic currency and not foreign currency or US dollar,” said Mthuli this afternoon.

“What does this mean? It means that anyone who wants to buy goods from the shop or pay for services within the borders of Zimbabwe ought to go to a bank, bureau de change or some other institutions to change their foreign currency into domestic currency and spend that whichever way they wish to spend. That’s what countries normally do, that’s what all countries do.”

This is the latest in a number currency moves that the Zimbabwean Treasury and the Reserve Bank of Zimbabwe (RBZ) has implemented over the past several months.

The RBZ’s February 20, 2019 Monetary Policy Statement announced the following: dollar balances held in local Foreign Currency Account (FCA) bank accounts and mobile payment platforms, as well as bond notes and coins, would no longer be regarded as equal in value to United States dollars.

Announcing the MPS, central bank governor Dr John Mangudya also said local dollar electronic balances and bond notes and coins would become ‘RTGS dollars’, part of Zimbabwe’s multi-currency system and trading at an exchange rate fixed by market forces.

The MPS also announced the introduction of an inter-bank market would be established for trading RTGS dollars with foreign currencies on a willing-seller willing-buyer basis.

The illegalization of the US dollar and other currencies is likely to have some impact on the interbank foreign currency market as well as the illegal foreign currency market.

Analysts are however not convinced that the Government can follow through on this move as use of the US dollar in particular had become prevalent across all sectors of the local economy.