It’s not even three months since Zimbabwe decided to bring coherence to its multicurrency economy by introducing a new local currency, the real-time gross settlement (RTGS) dollar, and already evidence suggests the country is leaning towards the US dollar as its unit of exchange.

In February, new finance minister Mthuli Ncube called time on bond notes in favour of the RTGS dollar and established a managed interbank floating foreign currency market.

But for many, the memory of runaway inflation in 2008 weighed heavily on any optimism surrounding Ncube’s reforms. It was the adoption of the US dollar in 2009 that brought hyperinflation under control — the economy stabilised, grew consistently and was in a state of deflation.

Fears of a recurrence are now driving a rush to preserve value — and the US dollar is one way in which to do so.

Immediately after Ncube announced that the local currency no longer had a par value to the US dollar, Zimbabwe’s largest fast-food retailer, Simbisa Brands, started charging both US and RTGS dollar prices to offset currency risk. The company has since run promotions and given discounts to encourage customers to part with scarce US dollars.

The list of businesses moving towards the US dollar includes some of Zimbabwe’s corporate giants. Internet service provider Zol — controlled by Econet Wireless Zimbabwe founder Strive Masiyiwa — charges US dollar prices for its home and office internet services. Retailers such as OK Zimbabwe, TM Supermarkets, Pick n Pay and Spar, as well as fast-food franchise KFC, are charging US dollars, and tyre retailers advertise their products in US currency.

Even state-owned enterprises have joined the bandwagon. For example, TelOne, a government-owned fixed-line telephone operator, is charging dollars for its data services.

Harare entrepreneur Norest Marara says it’s as if the economy has "silently dollarised".

A local currency in any name, form or shape is the worst thing for the economy under the existing conditions
Victor Bhoroma

The problem is that most Zimbabweans have very little faith in the central bank. The government’s lack of restraint in running the currency printing press and its creation of all manner of monetary instruments have done it no favours. Many believe the central bank is not independent of government and, by extension, of the ruling Zanu-PF.

The current inflation trajectory doesn’t help matters. Annual inflation to March was recorded at 66.8% — after the central statistical office changed the formula it used to reach these figures. Had it not done so, it says Zimbabwe would have been back at hyperinflationary levels of 166%.

Harare-based economist Victor Bhoroma says the redollarisation is being driven by the private sector’s lack of confidence in the local currency as a store of value.

"The dollarisation process is being pushed indirectly by the private sector, which [as in 2008] sees no value in selling with the RTGS dollar or [accruing] any savings in it due to hyperinflation," he says.

But opinion on the matter is divided.

"Redollarisation means entrenching the US dollar at the epicentre of the so-called multicurrency system," says economist Joseph Mverecha.

"Effectively, this means a US dollar payments system with marginal reference to other currencies. The US dollar dominates the multicurrency system to such an extent that it is, in reality and in practice, a US dollar payments system."

For Mverecha, there are serious dangers in using an international reserve currency as an internal currency. "It is not sustainable for a small open economy of which the GDP is less than that of a street in New Jersey, to sustain the US dollar as an internal payments system, especially where direct trade with the US is at less than 3%."

Others, including Masiyiwa, have indicated that Zimbabwe ought to consider adopting the rand, given that SA is the country’s biggest trading partner.

But the government seems set on a local unit of exchange. Last month, Bloomberg reported that Ncube’s decoupling of the RTGS dollar from the US currency was a step towards the reintroduction of a "fully fledged currency".

However, economist Godfrey Kanyenze says the government’s push for its own currency is an exercise in futility. "The indicators are going the other way. Government needs to rein in the deficit and stop fiscal indiscipline," he explains. "We need to deal with that, and then we can start a conversation about introducing a currency."

The mistrust of monetary authorities is a major stumbling block to any reform agenda.

"Currency is based on trust and confidence. There is a need to address the trust and confidence deficit, and create cohesion," Kanyenze says. "If that isn’t addressed, [any new] currency will be destroyed."

For Bhoroma, a focus squarely on a local unit of exchange ignores the real problem.

"A local currency in any name … is the worst thing for the economy under the existing conditions," he says. "Confidence is zero, production is falling, the trade deficit is widening and foreign currency shortages persist. The currency headache is merely a symptom of structural challenges in governance and economic management."