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THERE is a joke currently circulating on Zimbabwean social media of a woman who goes out to buy tomatoes at a nearby spaza shop.
On getting there, she asks for the price of a 1kg packet of tomatoes and the spaza owner tells her “R5”.
With confidence she takes out her R5 and hands it to the spaza owner, who without hesitation tells her off.
"We no longer accept rands here. We only prefer bond coins (in reference to coins that were introduced by the Reserve Bank of Zimbabwe to ease the issue of change and smaller denominations)."
The woman is puzzled because the spaza owner just told her the tomatoes cost R5, but is now rejecting the currency.
One cannot blame the spaza owner for pricing his products in rands. Since Zimbabwe’s dollarisation in 2009, rand coins were the preferred medium of exchange for smaller cash transactions and traders were used to pricing smaller items in that unit. Rand prices are still in their mindset and it will take time for that to change.
The above joke is just one tale about a country struggling with the use of US dollars among a basket of other currencies, including the rand which has tumbled to record lows in recent times.
The falling rand has forced most informal businesses in Zimbabwe to reject rand coins as a medium of exchange, in preference to the bond coin which is pegged to the US$.
Confusion now abounds in the country, with some analysts saying the rejection of the rand in favour of the bond coins is a clear sign that they have been a success in the country.
This is partly true, considering that the coins are readily acceptable as a medium of exchange by all Zimbabweans. Despite facing resistance when they were introduced, the bond coins have since been accepted across the board.
The “success of bond coins” has now resulted in some analysts calling for the country’s authorities to start a road map for the introduction of a local currency.
Gilbert Muponda, CEO and founder of GMRI Capital, said “the rejection of rand by the market gives the RBZ (Reserve Bank of Zimbabwe) a clear mandate and premise to explore and implement a local monetary unit which will circulate alongside the basket of multi-currencies".
He argues that “by rejecting (the) rand and accepting bond coin(s) people are making a very informed decision that they care about monetary issues and are convinced a bond coin is a store of value better than the rand.
“It therefore follows that higher denominations of the bond coin or notes can equally be acceptable to the market and it's worth a try; we have nothing to lose but everything to gain,” added Muponda.
Other analysts are however sceptical and do not believe the rejection of the rand is because people now prefer the bond coin.
A matter of convenience
“I think people are confusing things here. I think we should look at the reasons why the rand is being rejected. In my view it's not because the currency has depreciated, but I think it’s an issue of convenience,” said another analyst.
“The Zimbabwean economy is now mostly informal and players in that sector do not want to waste their time trying to calculate what the price should be in rand terms.
"Previously people just rated the rand coins at par with the bond coins, but now you can’t do that because the difference is too huge. You risk exchange losses. So in my view, people are rejecting the rand because it's too inconvenient for them and some who are not well versed in exchange rates do not want to take the risk,” he added.
There is however no doubt that the falling rand is doing more harm than good to the Zimbabwean economy.
On one hand, the weak rand is good for the consumer because Zimbabwean retailers and wholesalers will try to import cheaper products from South Africa for local consumption.
With disposable incomes falling by the day, retailers are opting for cheaper offerings from South Africa for the constrained consumer.
Further to that, if the country is to maintain the same quantity of imports it would mean the import bill will also come down.
On the other hand, if the rand continues to weaken against the US$ it opens up opportunities for more South African products to enter the country. SA manufacturers would want to hedge against currency risk and the US$ is readily available in Zimbabwe, so they will try and push their products into the country.
Some businesses are already placing adverts in South African media, advising customers that their products are also available in Zimbabwe.
All this will however come at the expense of local Zimbabwean products and manufacturers.
Zimbabwean products will become noncompetitive locally, while exporters will end up losing whatever market share they have in South Africa.
According to figures from ZimStat, Zimbabwe’s exports to South Africa were down 37.3% in August while imports climbed 5.4%.
The Zimbabwean authorities have however said the multi-currency system is here to stay. As for how long? Only time will tell.
* Malcom Sharara is Fin24’s correspondent in Zimbabwe. Views expressed are his own.
