Zimbabwe is one of those countries where de ja vu seems to be on repeat especially when it comes to economic matters. The government seems to keep repeating the same policies over and over again while at the same time they seem to expect a different outcome despite going down what are well-travelled paths. Again this seems to be true when it comes to our economy. Recently president Mnangagwa announced that the government would compensate those who lost money when the government woke up and finally admitted the rate was not 1:1 as they had been claiming for months.
Restoration of Lost value on Bank Deposits
The currency changeover of 2019 adversly affected the value of bank deposits of the banking public mainly as a result of the depreciation of the exchange rate. To address this value erosion, Government has resolved to compensate the loss of value on bank deposits to individuals who had funds in their bank accounts of US$1000 and below as of end of January 2019.
The compesnation for amounts less than US$1 000 has begun and will continue.
Currently, a framwork is also being put in place to compensate individuals with bank accounts of up to US$100 000.
The amount required and Implementation modalities of this policy will be announced in due course guided by the Public Debt Management Act and Reserve Bank of ZimbabweThe cryptic speech on the issue of changeover to ZWL
What happened in 2019
What on earth is he on about? This is Zimbabwe and a lot has happened since the government came to power in the 2017 coup so you can be forgiven for forgetting the issue being explored here. Let us help you.
You see around 2016 the Zimbabwean government introduced bond coins and then eventually bond notes. They liked to pretend that the bond note and coins were at par with the USD i.e. 1:1 as they like to say. They used to say that the bond was backed by a foreign currency real USD facility- a facility they eventually squandered by the way.
For a while, everyone happily went along with the fantasy that this was true. Eventually, people started getting suspicious and just like that the black market that had been dormant since 2009 re-emerged and the rate started at around $1.04 bond notes to 1 USD and steadily rose as it became harder and harder to get your money from the bank as the government was slowly and surely replacing it with RTGS as they steadily siphoned USD out.
So the rate rose over the course of 2018 and it became $2.00 bond as to 1 USD when the government announced that people and banks would be required to separate between FCA accounts (now RTGS) and real USD accounts (Nostro as they are now known). To many people that was all but an admission that the money in our accounts was no longer the USD we put in but the government of Zimbabwe is stubborn. They kept pretending for months to come that the rate was still 1:1 until the end of January 2019 when they finally admitted what we had known all along and introduced a fixed rate of around $3.5 ZWL/1 USD. By then the black market rate was now around 4.5 ZWL per 1 USD.
So what are the losses the president is talking about? Thanks to this obstinate procrastination a lot of companies were forced to do business on the presumption that the rate was 1:1 even though it was not. When the changeover came and the RBZ admitted that what was in the awfully misnamed FCA accounts of old were not really USD but RTGS dollars a lot of people lost their money in the fog of the changeover. You had US$1 000 in your account one day and when you woke up that money had been divided by 3.5. That was a massive loss for a lot of individuals and companies.
Paying the bigwigs
If the compensation line sounds familiar it is because it is. The Zimbabwean government has done it before when they “compensated” people for money lost back in 2009-there is a bit of symmetry here and the way things are going you can expect the government to be compensating people around 2029 for some other economic misdeed that results in people losing their bank balances.
Anyway, this compensation is apparently ongoing and I and you probably didn’t even know it had even started, how it works and how we can get our money back. You can try too but don’t bother, from experience only the well-conected bigwigs who this is really all about are going to get paid. The same thing happened during the last compensation. Our parents lost their money and never got it back but the connected, who got tractors for free on the government’s dime, are the very same ones who somehow were able to get their money back. This gesture is about paying the bigwigs.
It will not solve the confidence issue
This measure is somehow meant to solve the confidence issue. You see people have zero faith in the government’s ability to keep their money safe and that is for good reason. Over the years the government has derived sadistic pleasure from hailing economic fireballs on the unsuspecting public. Things like the recently scrapped SI 127 of 2021 wreaked havoc in the economy. Things like saying 1:1 for years and then waking up one day and saying now we admit its 3.5:1. Things like banning the multi-currency without consulting anyone after telling everyone who cared to listen for years that you would never do that.
I mean this speech itself is a masterclass in not what to do. We were lucky we got a copy and most people haven’t even seen it. It is possible that it was delivered on ZBC in which case not many people saw it not the stakeholders who stopped watching the propaganda outfit that ZBC has become a long time ago. Even those who watched the speech would probably not have anticipated its far-reaching contents.
Confidence is so easy to wreck. All you need is a well-timed statutory instrument that people don’t like and they stop trusting you forever. Confidence building on the other hand is a laborious process that takes years and that’s with the right people. As things stand and based on what is in this speech including raising IMT tax to 4% for forex transactions I cannot see anyone who is sane willingly banking their money. Doing so means that you have lost at least 2% of it’s value as you will pay tax to withdraw it. In what world is this supposed to induce you to take money from your pillow to the bank?