• Zimbabwe Approaches South Africa To Officially Adopt The Rand


    So, Happy New Year! Glad you made it. Hope you did not overindulge or come up with silly New Year's resolutions. Like "Finally Get Rid of Mugabe" for instance.

    I got information today from a source at the Zim Reserve Bank that the Zimbabwe government has now approached South Africa with a request to join the South African Customs Union. This Union, to which countries like Namibia and Swaziland and Lesotho belong, would see Zimbabwe basically jettisoning it's own currency and adopting the South African Rand. In the Customs Union, currencies like the Namibia Dollar for instance, are still printed but basically operate on par with the Rand, which means that your change in a shop, say, would be a mixture of Nam dollars and Rands.

    The South Africans are said to have put down some conditions. The conditions include that Zimbabwe's monetary policy be controlled by the SA Central Bank. In addition, the South Africans would also want to see a stabilisation period of between six months and a year in which Zimbabwe suspends the use of its own currency altogether.

    The biggest worry for the South Africans, however, according to sources at the Zimbabwe Reserve Bank is how the Zimbabwean government will fund itself in the event of a Customs Union marriage under the terms South Africa would like to see. Traditionally, government routinely overspends. It then simply goes to the Central Bank and demands that either money be released or printed to pay for unbudgeted expenditure. The South Africans are insistent that for the deal to even be considered, the Zimbabwe government has to give a commitment that it would live within budgets set at the beginning of each financial year. It would not be allowed to withdraw money willy-nilly as is the case now.

    The biggest sticking point however, is the demand by the South Africans of some of security for this move and the Zimbabwe Central Bank is said to be weighing the option of using platinum reserves in the country to be held to ransom as a condition for Zimbabwe to join the Union.

    What is clear however, is that the South Africans are seriously considering the approach, which is basically a continuation of the talks a little while back for Zimbabwe to be lent US$1 billion by the regional giant. SA has now simply put the ball squarely back in Zimbabwe's court, to come up with suggestions as to how the proposed move would be structured to avoid a contagion effect in the South African economy.

    This development comes in the wake of a Zimbabwe which has all but abandoned its own currency, even officially, in the last couple of months. The most favoured currencies are the US Dollar and the South African Rand. 

    Because there no official exchange rates that anybody takes seriously anymore, the street has come up with its own cross-rate for the Rand and the US dollar. It is amazing that this cross-rate, although not enforced by anybody (because Central Bank authority on foreign currency co lapsed a long time ago), it is uniform all over Zimbabwe: ten rand for every US dollar. 

    Zimbabweans now pay for a majority of their needs and wants in foreign currency, including: groceries from all the major supermarkets (a loaf of bread costs US$1 or Ten Rand), Kombis (the commuter omnibuses that are Zimbabwe's public transport), with a trip into town costs anywhere between US$1 and US$2 depending on the distance, shoes and clothing (even Bata, that shoe company for the masses, now sells its shoes in US dollars and Rands), household  furniture, fast food (yes, Nandos, Chicken Inn, Pizza Inn etc now sell their food in US dollars (they refuse to accept Rands). 

    Even Coca cola is now being sold for anything between US$1.50 and US$2 per litre. In fact, it appears that everything in Zimbabwe is now for sale in US dollars and Rands. Just a day or so back, the Reserve Bank of Zimbabwe also gave the green light for mobile phone companies and ISPs to charge in foreign currency.

    It is a spectacular capitulation by Mugabe, who has doggedly resisted any moves to either dollarise the economy officially or to devalue the Zimbabwe dollar (Simba Makoni had to leave government after Mugabe publicly called him "an enemy of the state" in parliament, this after Makoni had suggested that devaluation was the only way to save the Zimbabwe currency (that was back in 2002). 

5 comments:

  1. Anonymous says:

    where is Denford? Why are you writing on his behalf? I do hope that he has not been captured/abducted as the others have been on grounds of overtaking the government, and now the government have overtaken his blog?? Keep us informed if you are the government? At least we can give him the inspiration!

  1. Thank you Denford for your great blog. It's wonderful to see what is happening in parts of the world where I may never get the chance to visit. The Internet is great in allowing us to connect.

    May you have a wonderful and happy New Year.

    One more thing... it is not snowing in Pennsylvania today. We may get snow later this week.

  1. Anonymous says:

    Really!! is that all you are worried about! Amazing why are you on this blog!!

  1. Anonymous says:

    Denford, firstly thanks for this great blog. Any follow up on this? Joining the South African Customs Union will be very significant for our Nation. It is a necessary though not sufficient condition in the economic stabilization and turnaround programme. Pls may you touch base with your RBZ sources and provide us more details on how this plan is developing. Like you rightly say, we are already on unofficial dollarization, with this we will go on full dollarisation - starting with salaries for all workers and payment in rand or USD for all gvt services that require payment.

  1. Denford says:

    Hi,

    The last I heard was that Gideon Gono met with Tito last week. The sources are not entirely sure what that was all about, but I am sure if a journalist was to ask Tito, he would confirm the meeting.

    The thing as I understand it is that this is our baby, the ball is in our court. Tito was clear that inflation had to come down in Zimbabwe before joining the Union.

    Gideon has started these measures to dollarise the economy because he thinks that is the best way to bring down inflation. I think you can expect wholesale licencing of service providers to sell in forex before long. That will make the Zim dollar basically redundant.

    Gono thinks that as demand for the Zim dollar diminishes, so will it's price. An equilibrium will be reached at some point where everyone will accept a theoratically stronger Zim dollar if they never have to use it.

    At that point, I think we will can expect a quick admission into the Union. I reckon if you look at all that is happening, where even roadside vendors of tomatoes and mangoes are selling their wares in rands or US dollars, that day is not far away.

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