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New currency baffles Zimbabweans
ZimOnline
August 03, 2006

http://www.mg.co.za/articlePage.aspx?articleid=279632&area=/breaking_news/breaking_news__business/

Zimbabwean shops and businesses were on Tuesday slashing zeros from their prices as the country started adjusting to a redenominated currency introduced by the central bank. But ordinary people pondered whether this signalled that the country's economic fortunes were improving.

Reserve Bank of Zimbabwe chief Gideon Gono announced a set of hawkish measures on Monday, including slashing three zeros from its currency and introducing "a new family of bearer cheques" in a bid to arrest surging money supply growth and inflation.

Bearer cheques are a form of temporary currency first introduced by Gono three years ago when Zimbabwe faced an acute shortage of banknotes.

Ordinary Zimbabweans -- most of whom are battling to come to terms with the new dispensation, dubbed "Operation Sunrise" by Gono -- said the move to introduce new bearer cheques could create confusion.

"Does this mean that prices are going down?" asked Michael Chikoto, a private security guard at a shop in Harare's central business district.

When told prices will not be going down, Chikoto retorted: "So what is the fuss all about, why are they wasting money printing notes which do not have a better value than the ones we have?"

The security guard is one of hundreds of ordinary citizens who were battling to comprehend the redenominated currency, with many clearly unconvinced that the new money would help improve their lives or the economy in general.

Gono announced the move, saying this would bring back dignity to the Zimbabwe dollar, which is losing its value faster than any other currency on earth.

Analysts and business leaders said the move would in the interim help curb money supply growth but more drastic measures are needed if the central bank is to sustain its latest project.

The central bank chief says that out of Z$43-trillion circulating in the economy, only Z$15-trillion can be accounted for in the formal market, meaning that the rest is being stashed away in private homes and used to finance deals on a thriving but illegal black-market for basic commodities in short supply in Zimbabwe.

Wednesday, the police mounted roadblocks around the capital searching for foreign currency in car trunks and in some cases asking women to open their handbags.

"To a certain extent, yes that will work, but that will only be a short-term solution. What the country needs to do is to start generating its own foreign currency to ease pressure on the demand for forex, which is fanning the black market," Harare-based economist James Jowa said.

Most shops had already changed to the new system by midday on Wednesday, with some saying most consumers were still grappling with the new dispensation. They said that what made it worse was the fact that between now and August 21, when the old notes will be phased out, the country will be using a dual money system.

And to illustrate the level of confusion, some retailers in the second largest city of Bulawayo were refusing to accept the old money, arguing it was no longer valid, according to the Consumer Council of Zimbabwe (CCZ).

"We have received such complaints on a larger scale and what we are saying to those retailers is that they are violating the rights of consumers. They should cease to behave the way they are ... and accept the money that has been in use since it is still valid," said Farai Muchekezi, an official at the CCZ's Bulawayo office.

In the meanwhile, the central bank went into overdrive, running full-page advertisements in local newspapers and frequent commercials on radio and television, calling the new notes "our little heroes".

The state-owned Herald ran a front page list of major basic commodities with the old and new prices after the conversion, as part of efforts to help consumers, but shop workers were adamant that the concerted effort to market the new money was still to bear fruit, adding that many of their customers are still to get used to the new denomination system.

"Most people are still to come to terms with the new system but we are already compliant and it's actually easy when you get used to dropping the three zeros," a till operator at a major chain store in Harare said.

But it was business as usual for foreign-currency black-market traders, saying they were now more cautious after police stepped up their crackdown against the dealers.

Gono devalued the local currency to Z$250 under the new system, or Z$250 000 with the old currency, a rate that is still a fraction of the prevailing black-market rate.

Analysts said that although the controls on cash movement are welcome, holders of the money are likely to move the funds from foreign currency and fuel dealings to other assets such as property and stock market.

They, however, questioned the rationale behind the new notes when the central bank is planning to introduce a new Zimbabwe currency in the near future. Gono said the new currency will be introduced without prior warning and the public will have seven days to get rid of their old notes.

"I think it shows a man using trial and error to fix the economic problems but there are critical structural issues which need to be addressed, such as the issue of confidence in the economy, recognising property rights and the country's image abroad as an unsafe investor destination," leading economic consultant John Robertson said.

But for now, Chikoto, like many other Zimbabweans, has to cope with three less zeros on his currency. "Anyway, they are in charge, there is little we can do but to accept what they have put in place for us," he said with a resigned shrug. --ZimOnline

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