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28 Feb, 2019 10:05

Zimbabwe drops US dollar & relaunches own currency to revive economy

Zimbabwe drops US dollar & relaunches own currency to revive economy

The spiraling economic meltdown in Zimbabwe has prompted the Central Bank to introduce a discounted currency. The government is trying to reverse chronic cash shortages that left people struggling to get hold of basic goods.

Under the new rules, Harare decided to abandon an unrealistic dollar peg for the country’s surrogate bond notes and electronic dollars, which were merged into a new currency called the RTGS dollar. It was adopted with a fixed exchange rate 1:1 parity policy on the surrogate bond note currency and the US dollar for a managed floating system.

The RTGS dollar derives its name from the country’s interbank online payment platform, Real Time Gross Settlement.

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“There is nothing to stop Zimbabwe printing money with this new currency,” Jee-A van der Linde, an analyst at South Africa-based NKC African Economics told The Times daily. “The government has basically kicked the can down the road in recent years by trying to stimulate the economy through excessive spending,” he said.

Former finance minister and opposition politician Tendai Biti, who oversaw Zimbabwe’s adoption of the US dollar to curb hyperinflation 10 years ago, has slammed the new policy as “voodoo economics.”

“It is disaster, it is grand theft, it is voodoo economics,” Biti told the Financial Times. “There is no market confidence and there are no reserves,” he said, adding: “We are Zimbabweans, we have seen this before.”

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Residents of Harare now have to wait outside banks for hours to withdraw a maximum of around $30 in surrogate money or collect remittances from relatives abroad.

READ MORE: Zimbabwe to print own version of US dollar bill

Meanwhile, Finance Minister Mthuli Ncube insists that austerity measures he introduced in last year’s budget are working and government revenue is increasing.

Many businesses and economists have also welcomed the floating of the quasi-currencies, claiming that it restores some sanity after extreme distortions caused by the peg.

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As long as the government does not try to manage the RTGS dollar exchange rate, then this is a step in the right direction, Charlie Robertson, chief economist at Renaissance Capital, told the BBC.

He added that given the history that Zimbabwe has with currencies, it will take a lot to restore people’s trust.
According to Zimbabwe’s main opposition leader, Nelson Chamisa,

“The monetary policy statement is a disaster that will erode livelihoods, plunge the nation into darkness and uncertainty.”

Zimbabwe has been hit by rising inflation and increasing levels of government debt for many years. Following hyperinflation in 2009, the country abolished its own currency and adopted the use of a basket of strong international currencies led by the US dollar.

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