Mangudya says not enough USD in Zim to redollarise, Biti says that’s nonsense. On closer inspection, they agree.

Leonard Sengere Avatar
Bond notes in vault

There is a larger conversation to be had about whether or not Zimbabwe should officially redollarise. That is, to exclusively use the USD, or to at least scrap the Zimdollar project in favour of the USD and a few other foreign currencies.

There are compelling arguments in either direction. Under the dollarisation model, Zimbabwe experienced deflation with the economy struggling to grow. On the flip side, the reintroduction of the Zimdollar ushered hyperinflation back into the economy. 

There will be a lot of back and forth regarding this issue but even the Reserve Bank governor himself will admit,

People have got this heart, that obsession, that requirement to always hold foreign currency. They think it’s a more stable currency, which it is also.

Dr John Mangudya

This means even if we concede that dollarisation is not ideal, we also have to admit it may be the only choice we have. It’s still too early to expect Zimbabweans to trust any local currency. Which makes one wonder, are we not shooting ourselves in the foot by pushing the Zimdollar?

In any case though, it’s all moot. The economy has pretty much dollarised already. Or has it? Mangudya dismissed dollarisation saying “there is no sufficient foreign currency liquidity to support dollarisation in Zimbabwe” anyway. Former finance minister Biti fervently disagrees.

How many USDs are circulating in Zimbabwe?

According to the latest Monetary Policy Statement, foreign currency deposits grew to close December 2021 at US$1.94 billion (ZWL$210.70bn). Which was good for 44.33% of all deposits. 

We also know that Zimbabwe is attracting more foreign currency than ever before. In 2021, foreign currency receipts were almost US$10 billion. The impressive part being that exports are responsible for 64% of those receipts as opposed to remittances at 14.8%. 

Meaning productivity is up, something we need to generate the forex we would need to dollarise. In addition, industry capacity utilisation was up from 47% in 2020 to 61% in 2021 with some companies hitting 95% capacity utilisation. This is the right trend.

Now, I think we can all agree that the US$1.94 billion saved with banks would not be enough if we were to dollarise today. So, Mangudya is right, there aren’t enough USDs to dollarise even though we are attracting more forex each year. Maybe after a few more years of forex receipts growth we could be ready.

What about the US$10 billion though?

Our forex receipts represented about half of the country’s GDP. As a result some are of the opinion that we do have enough forex coming in to support dollarisation. Our problem is how we use up those USDs and how they are leaking out of the country.

Many believe the forex auction is one of the biggest reasons for our forex issues. For one, the forex auction represents a command style of distribution of funds. It is the govt which decides what to prioritise and so who deserves forex. In the history of economies, centralised decision making has hardly ever worked.

We received US$10 billion and spent US$7 billion of it thus:

  • 24% on raw materials, pharmaceuticals and food
  • 21% on capital goods
  • 13% on intermediate goods
  • 14% on fuel and electricity

How the forex auction fails us

Was that the best distribution of the funds we could have managed? Probably not. The forex auction though is here to stay so we might as well get used to companies complaining that the allocations they get are inadequate to grow/sustain their businesses.

When you consider that these businesses have their forex earnings forcibly collected and then redistributed, you can understand their frustrations. The govt will take 40% of an exporter’s forex and then the same exporter will have to queue up with others to beg the govt for an allocation.

The forex auction is costing the govt a fortune as they try to make believe the semi-fixed exchange rate derived there is the correct one. It costs millions of dollars each week to maintain the lower exchange rate there. 

This bites the govt in the back even harder because some are lining up at the forex auction only so they can take advantage of the arbitrage opportunity present as they can immediately make a hefty margin by selling their auction-sourced forex on the black market.

What about the informal sector?

The figures presented by our dear Mangudya are for the formal economy. The fact though is that Zimbabwe has a huge informal economy. This shadow economy is mostly a mystery to the officials. 

A few years ago, the IMF estimated that Zimbabwe’s economy is more than 60% informal. Second only to Bolivia’s 62.6%. Now, when we consider that the pandemic led to job losses across the country, we can assume the economy has only gotten more informal since 2020.

With this in mind, consider the response most Zimbabweans had when alerted that there is now more protection for their USD deposits, 

“Deposit Protection now covers foreign currency accounts up to US$1000/account. Will you deposit your USD now?”

Barf! Says: Only when Hell freezes to Absolute Zero, will I deposit ANY forex into a Zimbabwe bank or building society account!

All or Nothing Says: Lol! This is like telling me not to worry about the tsunami because I have an umbrella!

Comments on a Techzim article

Makes one realise there is a huge amount of foreign currency out there that will never see the door of a bank. The National Mattress Bank is undoubtedly one of the biggest banks in Zimbabwe by asset size, i.e. deposits. It’s a shame (or blessing) that these deposits were not captured in the official stats.

So when the governor tells us that there is US$1.94 billion in banks’ vaults we know that’s not quite the figure. It’s not just individuals stacking USDs under their mattresses, even some big corporations have sizable loots in the shadows. 

So, just how much forex is circulating in the parallel market? 

We will probably never know. However, just for giggles, let’s consider that at least 60% of the economy is informal. And that the average amounts handled in the informal sector are lower than those handled by huge corporations that have to operate on the up and up. So mattress deposits will not be larger than formal deposits.

Let’s work with a wild assumption that the mattress deposits only equal the formal deposits. That would mean there is another US$2 billion in savings out in the wild. Making for a total of US$4 billion in savings in Zimbabwe.

The question then becomes, would US$4 billion be enough to redollarise? Probably not. Biti, in attacking Mangudya, made a mistake in saying the US$9.7 billion forex receipts represented deposits currently in bank vaults. Said Biti, as quoted by New Zimbabwe,

In his own statement [Monetary Policy Statement] yesterday [7 February] he is boasting that deposits in private companies are US$9 billion, so you cannot tell me that if such money is allowed to circulate there is no sufficient money

Tendai Biti

Biti then went on to let us know that during his stint as finance minister they had less than that in deposits and yet the economy was somewhat stable. He said,

When I left, I left US$6,5 billion, and they actually now have more than what was there during the time of the GNU when the US dollar was working.

Tendai Biti

How Biti suggests we don’t have enough forex

We have covered how the actual deposits are less than US$2 billion, or around $4 billion by my crude estimation above. So, unwittingly, Biti seems to suggest that we actually do not have sufficient foreign currency to dollarise. 

The GNU oversaw stability but let’s not forget the challenges we faced then. Try as we might, the economy just wouldn’t grow because of the insufficiency of forex. We were in a recession, businesses were closing shop and people were losing their jobs. 

However, after having experienced hyperinflation, the general public did not mind the deflation they experienced. Seeing prices actually fall was praised by all. In hindsight though, we can clearly see that what we had then was sweet but unsustainable. 

So, if Biti is confirming to us that we had more forex deposits then than we do now, we can only conclude that what we have today is not enough.

To redollarise or not to redollarise

One could argue that if we abolished the Zimdollar and the command forex auction with it, we could actually end up attracting more forex. If we actually let the market decide how to distribute, allocate and spend even the same US$10 billion we pulled in last year, we could improve productivity, exports and forex inflows. 

So , although we can agree that the USD in circulation is probably not enough, we’ll have to disagree on the best way to rectify the situation. I would count myself among those that don’t think we can ‘command’ our way out of this using mechanisms like the forex auction.

It is not lost on me though that my argument can be summarised thus:

We do not have sufficient foreign currency to redollarise because we have not redollarised.

So the dollarisation debate will continue but now we know that whatever solution will have to consider that we might not have sufficient forex to avoid recession as of right now.

,

47 comments

What’s your take?

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  1. Tinomutenda Craigmore Madhuro

    INTERESTING ARTICLE

    1. Leonard Sengere

      It’s crazy. Zim’s problems are so deep they cannot have simple solutions.

      1. Barf!

        With zpf at the helm, vote rigging and greedy stupids bleating away, just to keep their “mercs ‘n perks” lifestyle, there’s no solution AT ALL!

        1. Leonard Sengere

          You’re right there. We can have thinktank after thinktank but unless we have a willing, capable and incorruptible executive, it’s as good as we don’t have any solution at all.

  2. Mbonisi Ncomanzi

    good read

    1. Leonard Sengere

      Thank you. The Zim story is one Hollywood film.

      1. Hugh Jarse

        I’d replace “Hollywood” with “Horror” personally…

        1. Leonard Sengere

          Hahahahaha, that’s more accurate.

  3. 123

    I don’t know why people don’t get this : “redollarization will stunt growth in the economy”. And no growth means no jobs, something we always cry about. I would rather have a job in a hyperinflation economy than have no job and no inflation. It’s sad to see how people we call the best of the best in economics don’t seem to get this basic law. Zim needs growth not comfort. Smh🙄

    1. Leonard Sengere

      It sucks to know this. You realise you don’t like where you are but then have to concede that the good old days of dollarisation and recession were not that good. You then realise that for the economy to grow we cannot redollarise. But then if we don’t dollarise, we might just hurt for no reason because the govt will probably continue stunting the supposed growth with stuff like the forex auction. Then you’re like, can we keep the Zimdollar but not the forex auction? Well no, that’s not going to happen as that would kill the Zimdollar. Then in the end you’re like ‘let them do whatever they want.’

      1. 123

        I also don’t know why people hate the auction system that much. I mean it has it flaws but at least it has some form of structure. Unlike the black market rates which are pulled out of thin air by certain “comrades”. Its just a fabrication, born out off people who most probably bought their educational certificates from uz like they tend to. It’s not mathematically calculated, it’s just guess work. And different people in different cities conjour up their own number. Not to mention it’s illegal and unethical. That’s what happens when people who should be focusing on using the exchange rates start thinking they can make their own. In other countries you can literally calculate the projected exchange rates to high degrees of accuracy on your own, but this is not the case on the beloved black market rate. I really understand that the gvt has cheated people in the past when it comes to exchange rates hence people will naturally be attracted to to highest figure but enough is enough. Someone needs to put their foot down and establish some order. And people wonder why Zimbabwe is the worst place to do business in. It’s not even about zpf, it’s about structure, the unapologetic rule of law. That’s what’s missing

        1. The Empress

          The auction system could have been a solution but it’s now part of the problem.
          Let’s talk about the 14% allocation for fuel and electricity and let us say for the sake of argument that 6% is fuel. Now let me ask you this.
          When was the last time you saw petrol/diesel petrol being sold for Z$?
          The petrol station only sell their fuel for US$ and don’t take Z$ in any form, after selling the fuel for profit they then turn around and source more US$ from the auction. Where did they get the Z$? Obviously they went nd bought it on the blackmarket and kept the difference between the rates. This is not a flaw but a case of the system being outright broken nd what does the RBZ do to solve such a glaring problem? Nothing.
          The blackmarket is maybe “illegal” etc etc but the rules of supply and demand actually work you pay for your forex and you immediately get your forex. Judging from the amount of time the winners wait to receive their forex, the auction system seems to be selling forex that they don’t actually have.
          You do realise that between the two the blackmarket doesn’t have a record of cheating unlike the auction rate which operates on opaque rules.
          It’s when you urgently need to buy medicine that is only sold in forex that you realise that the true market is on the street not the auction rate that sets prices for things that they don’t even have

        2. Leonard Sengere

          I believe The Empress made some good points with a good illustration. What I would add is that black market rates are not pulled out of thin air. What we have is a scarce resource and high demand, people are bidding for this resource and driving the price up – basic market stuff.

          See, the ordinary Zimbo’s forex demand stems from – some goods/services can only be paid for using forex (eg rentals), low faith in Zimdollar has it losing value consistently and so to shield one’s savings from loss of value, forex is demanded. Same applies to businesses, with Zim manufacturing still a shadow of what it once was, most goods have to be sourced outside the country (including raw materials and finished goods to sell).

          Now, our exports and remittance inflows are increasing but are still too low to meet the demand we mentioned. Businesses and individuals therefore have to battle it out on the market for the scarce forex. Naturally, the price of forex goes up.

          What the forex auction is doing is basically trying to control prices. They force those who earn forex to surrender 40% of their takings. They auction out these earnings and control who can participate, how much they get, when they get it etc. And remember that you can have the highest bid but you still won’t get the actual amount you need. Think of a guy with 2 items for sale, first buyer bids $5, the other $10. The seller says you know what, the $5 needs this more so sells one to each. The average price of the item will be recorded as $7.5 but that’s misleading as that’s not what the market decided. That’s what the guy who controls the product decided. That’s not how auctions work – the highest bidder should get what he wants.

          If millions of potential buyers are excluded from participation or from full participation – that’s not an open market. Without an open market you cannot have accurate price discovery. Hence why the govt is forced to subsidise the forex auction, so they can sell at prices that are lower than what the market decided. Some say it’s costing around $40 million a week to maintain this command forex auction.

          1. 123

            The black market rates are not pulled out of thin air you say. I will ecocash you 50 USD at the interbank rate if you can calculate next week black market rate (showing all workings). Fyi you can’t. Because the figure is decided by some comrade who bankrolls the money changers. The same comrade who siphons money, supposed to be using in the auction, and gives it to his bootlickers for his/her own gain. The reason why most money changers always have brand new notes even before they come out. Now if the law of supply and demand was the one deciding the figure, then individual money changers would have different figures on different days of the week because business is not the same for every one. Following this type of trend it should on be low mid month and high on month ends. Prolly higher on weekends and lower mid week. But this is not the case because what most people are stating are unintelligent opinions not facts. Don’t you guys have an in-house economist or someone to run these things by, because wow, the level of sheer incompetence is shocking. You should definitely start your articles with in “our opinion” because you can really be charged with publishing falsehoods predujicial to the state. Man it really sucks to be one of a few people cursed with knowledge. I rest my case

            1. 123

              I might have gotten carried away but my point was the supply and demand curve flactuates significantly under different times and environment. Unlike the black market rates which has forever been on a rise. So you see how your theory is false

              1. Mt5

                Rates actually go up in in the midst of the month because that’s when the bulk of civil servants get the rgts$ and whats the 1st thing they do? Buy usd$ from the black market
                You seem to cherish the auction system @123 but everyday people don’t get their Us$ from it
                You need to take perspective from an everyday person’s view
                or are you a murakashi?

              2. Mt5

                Its quite unfortunate for you to be unaware of why the blackmarket rate is ever rising judging by how much knowledgeble you think of yourself

    2. Munya

      Asi zvaikozvino pqine growth yacho yamoreva mabasa hakuna futi wani

  4. wokenman

    Ko IMF SDR money yakatodyiwa – haah these people!

    1. Leonard Sengere

      Chekumirira hapana. Mari ngaidyiwe. We’ve drawn a good chunk already.

  5. Home schooled.

    @Leonard Sengere, would maybe joining the rand monetary unit informally help ?, coz surely we cant continue like this. Everyone wants a stable currency and the Zim dollar nobody wants it.

    1. Leonard Sengere

      Joining the CMA, the Rand union does not preclude a country from having a local currency. However, we would need to have forex to back up the Zimdollar which could help. There are a lot of positives to joining the CMA but it remains that we need total monetary and fiscal policies to climb out of this pit. So, most of the disadvantages of redollarising would apply to the Rand route. But at this point I’m leaning towards that over whatever we are doing.

    2. Imi Vanhu Musadaro

      You want Zimbos to be hated even more, in South Africa, after we collapse the whole monetary unions currency. 🤣 There will be cash shortages the region.

      1. Leonard Sengere

        I’ve heard rumours that the South Africans really did make some extra unacceptable demands if we were to join the Union just so we wouldn’t join and ruin everything. Not saying it’s true but I would have done the same were I in their shoes.

  6. Barf!

    Even if Zimbabwe does “redollarise”, it’ll take more than a miracle or ten, to get the country out of its own self-inflicted mess! It also depends on getting rid of zpf and greedy stupids in parliament, with MPS who might actually be bothered to build things up! Ha bloody Ha! As if that will EVER happen!

    1. Leonard Sengere

      I remember someone say Zimbabwe’s problems aren’t economical but political. We could hatch the perfect plan but alas, politics won’t let it succeed.

  7. Mt5

    How about the Rand as an option . Would it not make sense and stimulate economic growth since more than 90% of transactions involves SA

  8. Mt5

    How about using the Rand as an alternative to the US$? Would it not make sense since the RSA is Zim’s largest trading partner with over 85% of Zim trade deals being with RSA

    1. Leonard Sengere

      That route makes a lot of sense even as it has huge drawbacks. However I’m reminded of ED’s comment:

      In 2008 after the local dollar collapsed the former administration (led by former President Robert Mugabe) that I was part of set up a committee of five. I was part of that committee and we decided to approach South Africa with a view to join the Rand Monetary Union.

      We were given a check-list of conditions to meet. Some of them were unacceptable.

      So, we can discuss the merits and demerits of the move but it’s never going to happen. Again, ours is a political problem, not an economical one.

      1. Imi Vanhu Musadaro

        They want the ability to switch on the RBZ LaserJet as they please. 🖨️ 💵💵💵💵💵💵

        1. Leonard Sengere

          Let it go brrrr. Ya, there are other reasons why the deal would likely be a lose-lose however, in Zim’s case, not having the ability to control our monetary policy is the major one. What would we do with the printers? Joining the Rand Union would lead to a drop in capacity utilisation at the RBZ, with perfectly functioning printers laying dormant. That would be unacceptable.

          1. Aa

            You do know that zim does not print its own money right. It has zero mints. Just saying

            1. Iron Hide

              It prints the RTGS dollar, that which you send to each other via Ecocash and Bank transfers. And it forms the bulk of our money supply. The paper notes that you were thinking of only make a tiny fraction of our money supply.

  9. Dhuterere

    Biti is very correct Zim has enough USDs to redollarise bt what it lacks is the goodwill from greedy politicians who would wany to loot every dime. If managed properly those USDs available will sustain us if the politics is mended. He has done it before… It does make sense to have meaningless growth e.g getting more jobs but the civil servants failing to buy a mattress in 5 years (more jobs to underpaid workers= no growth at at all).

    1. Leonard Sengere

      I disagree. We don’t have both – the USDs and the political goodwill. Not to say dollarisation wouldn’t be the best course of action, it might be, but we should make that decision knowing fully well that we don’t have enough USDs.

      Try telling the jobless person that they are better off than the employed teacher and tell me how that conversation goes. I hope you realise that our teachers are underpaid and yet earn way more than the average Zimbabwean. So, no, I wouldn’t call this meaningless growth. It’s not ideal and the situation desperately needs improving but it’s not meaningless.

  10. Dhuterere

    To the average citizen that deflation under Biti was managed quite well and livelihoods of the average worker was improved why because there wasnt plenty to loot to the average politician

    1. Leonard Sengere

      We were sacrificing the future just so we could breathe a little after hyperinflation. The average worker you mentioned was the lucky one. Most were either failing to find jobs or losing the ones they had. So to say the deflation was managed well would be a stretch. But to say we needed the breather from inflation is accurate. If we were to agree that the politicians had less to loot like you said, we would have to concede that we were not in an ideal situation. There should always be plenty to loot, we only pray that it’s not looted.

  11. The Empress

    People are obssessed with redollarisation because the government itself doesn’t show any belief or trust in the local currency of the country.
    This is made obvious by the way every ministry or department when setting out it’s rates or taxes almost always sets it in US$ and then as afterthought the local currency. And in the case of the passport fees they didn’t even bother to explain why it’s only set in in US$. So the govt is doing everything in its power to get US$ and almost every good and service is also priced in US$.
    So even if the argument against redollarisation may be valid it doesn’t matter the death of the Z$ is all but guaranteed all that’s unknown is how long it will take to die.

    1. Leonard Sengere

      Exactly. What we have today are fiat currencies and they are worthless unless we agree that they are. They are IOUs and the value of an I-owe-you comes from the trust placed in the one making the promise. I know very little in this world but I do know that trust in the RBZ and Zim govt is not that high. So yeah, the Zimdollar is pretty much doomed to fail, regardless of where we stand on the redollarisation debate.

  12. 3man

    It’s interesting to note that teachers have been offered US$100 enough to get an e-passport ONLY. So what takes care of the rest of the basic needs of their families? So an ordinary self employed citizen has been deprived of the right to own an e-passport by this outrageous pricing model of the passport. One wonders what kind of government this is and it’s policies.

    1. Leonard Sengere

      The fact that the govt wants USD for the passport tells you the faith they place in their own currency. These are the same people that are annoyed that teachers are asking for USD salaries.

    2. Realisticzimbo

      Not everyone is supposed to have a passport , no everyone is supposed to drive a car , under post GNU Zimbabweans were made to believe that everyone could own a house , car or some even have 5 or 6 cars at one house . The Zimbabwe us Zimbabweans want is a fantasy. We don’t have enough money I agree with Mangudya. Our exports have improved but we not yet at the stage whereby we can dollarise . If we do dollarise it’s a move we could regret because the Chinese and different countries will flock to Zim to take the USD we should know this already. The Chinese you see in Zim are not here on holiday they are here for the Usd

  13. Mwenewazvo

    Redollarisation is not an option. We will face the same situation of everyone flocking to Zim and siphoning the hard currency out. Confidence in a currency is built by confidence in the system. Mthuli and Magudya need to deal in good faith. That means they must stop printing RTGS clandestinely as they are currently doing. Choke the RTGS supply and the rates will stabilise. It’s that simple. But Zimbabwe’s biggest problem is that only a very small percentage of people pay taxes, yet everyone expects to access services like health, education, documentation etc at subsidised prices. Hazvishande izvozvo. Citizens and government must meet in the middle. Citizens pay taxes. Government is transparent and accountable in spending. Pasina izvozvo hatina kwatiri kuenda. As long as citizens think kutaura pasoho ndiyo governance and involvement ticharamba tichingotaura nyaya iyoyi for the next 30 years.

    1. Leonard Sengere

      I agree on the first part. I have thoughts on the tax issue. I think it goes back to the trust problem. We don’t really know where Zinara funds are going. We’ve had billions disappear. Etc So we’d be foolish to think this time will be the charm.
      Then there’s the fact that the 2% tax was introduced for that very reason – to charge the informal sector who were not paying taxes. That tax is charged all the way from producers to consumers too. So the charge is compounded everytime goods exchange hands.
      So, I don’t think we’ll be meeting each other half way any time soon. Which is a shame cause we need to work together to fix this.

  14. Anonymous

    no one is talking about diamond money

    1. Leonard Sengere

      It’s not just diamonds, it’s all the minerals. Most of them are being smuggled out, robbing the country of revenue. But again, forcibly taking 40% of miners’ revenue will only add to their resolve to subvert the formal channels.
      It’s hard to fix a system that noone wants to be a part of. That’s why the govt will find it hard to succeed.

  15. Gibbs

    Can someone help me understand what were the objectives of GNU. Were the objectives achieved? Was GNU an end in itself or it was a stabilisation solution meant to pave way for the next government to start building the economy. Did the next government took over from a worse/better position than before GNU, ie Hyperinflation? Did the next gvnt pursue its expected role or it squandered the opportunity through self serving acts of commission and ommission , corruption etc such that we need to restart dollarisation again?