There appears to be a shift in attitudes toward the acceptance of torn and soiled United States dollar notes in Zimbabwe. Recent observations suggest that more businesses, particularly smaller vendors, are now accepting these notes at face value. This is welcome news for consumers who have struggled with the stigma attached to less-than-perfect currency. But is this a permanent change, and what are the underlying factors driving it?

A Change in the Air?

In a recent survey conducted by Zimpricecheck.com, it was observed that an increasing number of vendors, especially those selling snacks and prepaid airtime vouchers, are now accepting torn or soiled USD notes without applying any discounts. This means that a torn one-dollar note will get you goods or services worth exactly one dollar.

This represents a notable departure from past practices. Previously, many businesses, including larger formal establishments and even certain government departments, were hesitant to accept such notes. Their reasoning often centred on the difficulty of using these notes as change, fearing that other customers would reject them.

The Challenges of Handling Soiled Currency

The reality is that torn and soiled notes are not meant to remain in circulation. Ideally, they should be repatriated to the US Treasury, where they are safely disposed of. However, the cost of shipping these notes back to the United States can be substantial. This is why even banks in Zimbabwe typically do not accept soiled notes at face value, often demanding a discount ranging from 3% to as high as 20% to cover their costs.

Another factor, though difficult to substantiate, involves the preferences of some foreign business owners in Zimbabwe. It is claimed that business owners from countries such as the Democratic Republic of Congo, India, and the Maghreb, for various reasons, often avoid traditional banking channels. They prefer to trade in cash and, when repatriating funds, rely on informal systems like Hawala. These Hawala networks allegedly prefer large, clean notes to minimise complications and costs associated with transporting cash. The demands of these networks, in turn, are passed on to customers, contributing to the reluctance to accept worn notes.

Why the Shift?

So, what is driving this apparent change in attitude among vendors? One plausible explanation is a simple matter of supply and demand. The first quarter of each year typically sees a decrease in demand for goods and services in Zimbabwe. This is largely because many families are focused on covering school fees, uniforms, and supplies for their children, leading to financial strain and reduced spending on non-essential items. The consequence is low demand, especially for goods that are considered discretionary, such as sweets or even airtime. To stimulate sales, some vendors are seeking ways to differentiate themselves from the competition.

This is also occurring at service stations. It was always rather perplexing that established service stations like Zuva would refuse torn notes, especially considering their involvement in international trade and dealings with large financial institutions. The rationale often cited was that customers were effectively using them as a dumping ground for worn notes, resulting in a disproportionate amount of damaged currency in their daily takings. However, with increased competition in areas like Harare, where numerous service stations operate in close proximity, even this stance seems to be softening.

The Reserve Bank of Zimbabwe’s Stance

Back in December 2020, the Reserve Bank of Zimbabwe (RBZ) issued a public notice addressing the issue of old and worn United States dollar notes. The RBZ stated that it had come to their attention that some people were refusing to accept old and worn USD notes alleging that they were old and mutilated and therefore of no value. The RBZ noted that the United States government position is that U.S dollar notes do not expire no matter their age, and that the U.S. Government does not even consider old, worn notes to be mutilated as long as more than half of the note is intact, and the value of the note is clear. (See “The RBZ Wants Business To Accept Torn USD Notes, It Should Foot The Bill“).

The statement, while technically correct, omitted crucial context. While the US government considers all issued notes as legal tender, they are ideally meant to be sent back to the Bureau of Engraving and Printing (BEP) for replacement. Sending these notes back to the US involves significant shipping costs.

The hypocrisy, as we noted then, is that customers who want to offload torn notes onto businesses are often unwilling to accept those same notes themselves. They are, in essence, trying to shift the burden of dealing with this damaged currency onto businesses while expecting them to accept it at face value.

The Right to Refuse

Legally, businesses in Zimbabwe have the right to refuse to accept torn or old notes. As we explored in a previous article, “Zimbabwean Shops And Businesses Are Right To Refuse Old And Torn USD Notes,” contract law allows parties to a contract to specify the mode of payment. When you enter a shop and select items to purchase, you are tacitly entering into a contract of sale. This contract is only executed when you offer “acceptable payment.” Even though USD notes are legal tender in Zimbabwe, a business can still stipulate that they will not accept torn or old notes.

The RBZ’s view that torn and soiled notes should be accepted at face value, as explained in their December 2020 notice, did not come with a solution for the costs businesses incur. They did not offer to foot that shipping bill. If the RBZ is serious about enforcing this policy, they should provide a mechanism for businesses to exchange these notes without incurring losses. This could involve setting up a system where banks can deposit the notes with the RBZ, which then handles the repatriation process. There should also be some insurance that compensates businesses that incur losses as a result of taking old notes that later turn out to be counterfeit.

The problem with old notes

Accepting older USD notes also carries the risk of encountering counterfeit currency. With advancements in counterfeiting technology, older notes are more vulnerable to replication. Businesses face the risk of bearing the loss if they accept a counterfeit note. Therefore, a balanced approach is necessary, where businesses avoid overly old notes while remaining flexible enough not to lose customers.

While the increased acceptance of torn and soiled USD notes by some vendors is a positive development for consumers, it is unlikely to become a widespread practice without a comprehensive solution from the RBZ. Businesses need a way to manage the costs and risks associated with handling this currency. Until then, the acceptance of torn and worn notes will likely remain selective, driven by market forces and individual business decisions.