Zimbabwe is a curious country and sadly mostly for wrong reasons especially on the economic front. Things are so complex that there is almost a need for a manual to understand how money operates in Zimbabwe.
There are two general classes of money currently: A. Funny money; B. Real Money.
Zimbabwe has already been declared a kingdom of funny money. Our monetary history proves this tag very accurate. Local currency is all in this class. The sad thing is that a good chunk of what we are calling funny money was once real money (USD) but it was swapped out with this nonsense we are calling a local currency by the government.
1. Local money in the bank and ‘other mobile money’
This is the lowest form of money. It is money that is vulnerable to the whims of the Zimbabwean central bank. They tell you how much of it you can withdraw at a time. Right now the weekly limit is ZW$1,000 which is equivalent to just above USD10 per week!
Funny stunts can be pulled on you at any time if you keep your money in this form. For example, you can wake up to being told you can only perform a maximum of two transactions per day. This is why this money is valued less than all other forms of money in the general market. Currently (20 June 2020) on the parallel market you would part with about ZW$92 of this currency to get 1 American Dollar.
The mobile money wallets that have miniscule market share fall in this category too. If you are the one holding USD and want to change it to make a purchase at a place where they don’t distinguish between these forms of funny money (read supermarkets) then this is the best form to take since you will get more for your dollar. BUT don’t do it, it’s not allowed. In fact, merely reading this is illegal, you will be considered a passive participant!
EcoCash is the dominant mobile money wallet with a market share of above 95%. It is the dominant consumer payments platform period. Money in this form is not too different from the one above. When you hold it you are still vulnerable to all sorts of restrictions and you will be treated as a criminal just for transacting above USD1,000 in a month.
The reason why this form of funny money is a little more valuable than money in the bank is that EcoCash is so prevalent. You can send money to literally anyone in Zimbabwe. It is almost as ubiquitous as a mobile phone in the adult population.
With the recent ruthless restrictions that have been placed on the platform by the Reserve Bank of Zimbabwe, I am told that those who hold money in EcoCash will only part with ZW$85 or even less for an American Dollar on the illegal circuit. Thus it is valued slightly more than money in the bank or on peripheral mobile money platforms.
3. Local currency cash
It is not as easy to come by. As I said above: there are crazy withdrawal limits at the banks. Indeed scarcity gives it value above its weight. The second reason it has value above its banked or mobile wallet residing cousins is that you can easily change it to hard currency and to boot you do it without a digital footprint for authorities to track you through. Don’t do it.
This has made some informal traders and some not so informal but just as unscrupulous businesses demand cash only and no local debit cards or mobile money. This demand in and of itself then increases the premium on this form of funny money. Public transport operators are the most unscrupulous of the lot and they are the reason people still generally queue at banks to get local notes.
By the way, this currency now comes in two forms: bond notes which were introduced in 2016 as Zimbabwean USD accounts were being raided by the government. Literally we deposited American Dollars and we woke up one day and we could only make withdrawals in the bond note which they said was equal to the USD. Recently, the government introduced some new notes which are not bond notes. Yes very funny money.
As usually happens when you have two contrasted classes you also get some middle ground elements. To be honest, the following forms of money are more funny than they are real. I however, classify them borderline because as of today you still have some kind of options beyond Zimbabwe’s borders. The forms discussed above are completely useless outside Zimbabwe.
4. Money in a business FCA
Exporting businesses and all businesses that operate foreign currency accounts are really being unfairly treated. There are all sorts of types of accounts under this bracket which are too confusing to mention but the gist of all of them really is that any foreign currency that gets in there is foreign currency until it’s not.
First, businesses cannot go to the bank and withdraw this money in the currency that the account is denominated in. If they want to withdraw they are given local notes. They don’t even get the fair value equivalence, they get ZW$25 of funny money for every American Dollar they withdraw. That exchange rate was just unilaterally declared by the government, no one knows what its basis is.
Second, hard currency that hits a business FCA can be used to make external payments but of course the business can be told that there is no forex to fulfill the external obligation. The country’s shopping list is kept at the central bank. No one knows how priorities are made save that some politically connected fellows can import luxury vehicles while some businesses can’t import critical spare parts.
It gets worse. A business can only make that potential external payment within 30 days. After that period, the money in the FCA is changed into local currency at the robbery rate of 1:25.
5. Money in a personal FCA
Currently, individuals can still withdraw money in their FCA in hard currency (subject to availability). They can also keep it there indefinitely but to be honest you have to be mad to do that. Like I said at first, what we are calling funny money today was actually USD and because we were naive enough to keep it in the banking system it just got changed on us overnight.
The risk to this form of money has just been increased by the recent announcement that civil servants will be getting a stipend in USD. This money (they say) is going to be deposited into FCA accounts. That makes me very nervous. Where did the government get that kind of money suddenly? Yes we know they hire private jets and all if there is no COVID ruling the world but they are broke when it comes to paying employees.
My (for good reason) skeptical mind tells me that stupid restrictions are about to visit individual FCA accounts. Banks will probably trip over each other to open FCA accounts for civil servants but the government will probably transfer valueless digits into those accounts. How? Read how they did it before.
Next Tuesday there is a new interbank foreign currency auction that will be going live. The Zimbabwe Electronic Settlement System is the platform that will be used for settlement of transactions in this auction. This is the same system that was employed by the government to turn our USD into funny money in the first place. It is highly probably that fictional numbers will be sent to civil servants accounts through this. The more they print, the more the so called Nostro FCA accounts will be just as funny as RTGS accounts.
6. Money on USD prepaid cards
Almost all Zimbabwean banks have VISA or MasterCard enabled cards that you can pre-fund with hard currency for online transactions or international travel in a pre-COVID and hopefully a post COVID world. Generally, these cards are more flexible than the individual FCA account proper.
That said, I would advise anyone with “free funds” as the authorities call your hard currency to only load these cards for immediate use and so only load up just enough for the specific transaction. As all things banks, the claws of our immoral government are within reach of these cards and the rules may just change against you while you have your savings locked up there.
7. USD under your mattress
It is sad to admit that this is the most secure form of money in Zimbabwe yet it’s not secure at all! Money under a mattress has always been a bad idea. We used to sing songs about this in primary school. Lo and behold, the monetary and fiscal authorities have brought us to this stage where keeping money in the bank is the illogical thing to do.
There are some other forms of money that are almost as good as USD. To be clear any other country’s currency is better as a store of value than local currency. Of course there will be differences among the currencies. A Pound Sterling cannot be of equal value to an equivalent sum in Zambian Kwacha and of course I don’t expect you to be holding Venezuelan money.
The gradient of usage
You can observe these forms of money across a gradient of sorts in how people use money in Zimbabwe. If one has money in a mobile wallet or local currency bank account they will generally use that before they use hard currency forms of their money or even local currency cash which they will only use in places they don’t have a choice.
From there, people will use FCA or prepaid card money for international purchases or local hard currency denominated purchases before they touch their USD cash. Even the cash itself is spent according to a gradient. Smaller notes are disposed of first; dirty notes leave the wallet before cleaner bills….
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