The RBZ and the United States of America’s embassy in Zimbabwe insist that torn and soiled USD notes are legal tender that everyone should accept. On the streets of Harare that has never been true. No one will accept your torn or soiled USD notes and the few that do will not accept them at face value. This has led to a booming sector that profits from buying and exporting soiled and torn notes back to the United States. Currently, these people are now buying soiled and torn notes at a 50% discount. If you have a torn USD dollar you will only get half its value.
U.S. government policy is that all designs of U.S. Federal Reserve notes remain legal tender, or legally valid for payments, regardless of when they were issued. This policy includes all denominations of Federal Reserve notes from 1914 to present.
…Any badly soiled, dirty, defaced, disintegrated, limp, torn or worn out currency note that is not mutilated, and does not require special examination to determine its value, is considered legal tender by the U.S. government.What the US Embassy in Harare had to say on the issue
Zimbabwe’s informal sector says otherwise
Everyone is well aware of this US policy, during the GNU days torn USD notes were frowned upon but there were generally widely accepted. This is because the general populace is not the one that comes up with these policies or attitudes. It is the informal sector. Estimates by the IMF and other experts estimate that the Zimbabwean informal sector contributes and thus controls about 70% of the Zimbabwean economy. Unfortunately ever since the dissolution of the Government of National Unity, the government seems to have made it its business to fight the informal sector and severed the link between formal sectors of the economy such as banking and the informal sector.
One big reason why everyone accepted torn and soiled notes during the GNU era is that they could freely spend these notes without fear of them being rejected by others. If you faced a problem you could just deposit the soiled notes into your bank account. Banks also generally accepted these notes without a fuss. When they did charge you a fee it was a very understandable 3%. So no one minded soiled and torn notes because they could use them. Now it is a different case. Even banks are not accepting torn or soiled notes. The formal sector leads in rejecting these because it is the informal sector that dictates policy now and not the formal sector. The informal sector has very little access to banks and even when they do have access the banks are not accepting those notes either because they do not want to bear the cost of taking them back to America.
We have already touched on this in an earlier article but it bears repeating. Torn, soiled and mutilated notes must eventually be taken back to the United States of America. That is a cost no one wants to bear because it is an undertaking that will cost you money. Banks already incur costs when they bring USD cash to Zimbabwe it would be unfair to expect them to foot the bill to transport torn and soiled notes back to their country of origin. Someone has to pay for the security and transportation costs for all this and banks do not seem interested in doing this for free.
Somebody is making money from all this
It however seems someone has tapped into this market and they are making a killing. As already said these unknown individuals are now paying 50% of the face value of a soiled or torn note. They are then somehow taking the notes back to an entity that seems to offer repatriation services back to the US where they get full value. A business that offers 100% profit is a very lucrative business indeed considering the state of our economy where most businesses are struggling. All the street money changers whom we interviewed were quite coy when it comes to revealing the inner dealings of their benefactors as is always the case. It seems they are just middlemen and they earn a commission on whatever they deliver. From there it is a black hole.
The government can step in.
No, we do not mean for the government to come up with one of their now famous draconian Statutory Instruments and ban the practice because it will achieve nothing. We mean for more constructive intervention. They should team up with the American Embassy to offer a service that makes it easy for notes to be repatriated back to the United States for a more reasonable fee of say 10%. They can setup a service that allows people who so wish to change their soiled notes and get clean bills no questions asked. That’s the only way this practice can come to an end.