HARARE, 11 August (IRIN): Nearly 90 percent of Zimbabwes currency is kept outside of the banking system, which, analysts say, illustrates that the parallel market is the driving force in the economy, while the formal sector withers.
Far-reaching currency reforms, instituted this month by Reserve Bank governor Gideon Gono, were aimed at redressing the imbalance between the two sectors and reining in hyperinflation, hovering around 1.000 percent.
Gono said recently that of the about Z$40 trillion (160 million US dollar at the previous official rate) of old currency in circulation, only about Z$5 trillion (20 million US dollar), or about 12,5 percent, was passing through the banking system. The remainder was in the parallel market.
The central bank introduced a new currency to replace the old denominations at a new exchange rate, forcing people to return cash hoarded at homes, offices and outside the country to the formal banking system.
Gono set an August 21 deadline for exchanging old currency for new, and also adjusted the official exchange rate from Z$250,000 to one US dollar to Z$250 to one dollar.
The sting (problemet) was that individuals could only exchange Z$100 million (1.000 US dollar) daily, in a window period that allowed a maximum of Z$1,6 billion (16.000 US dollar) to be exchanged before the new currency comes into effect.
The reforms were launched in tandem with nationwide roadblocks, manned by the police and youth militia of the ruling ZANU-PF party, who confiscated money from individuals carrying more than Z$100 million (1.000 US dollar).
A Reserve Bank statement has claimed that the operation, in which airports, companies and homes were also searched, has so far recovered Z$10 trillion (40 million US dollar), or a quarter of the money in circulation.
Isaac Kwesu, an economics lecturer at the University of Zimbabwes Graduate School of Management, said the parallel economy, which consisted of the black market and informal trade, was what maintained the economy.
– The parallel economy now underpins (understøtter) Zimbabwes survival. The black market in particular has been flourishing over the years, and this has been made possible by the ever-shrinking formal market, due to reduced productivity in industry and in agriculture, shortages of foreign currency and a steep decline in investment, Kwesu said.
– Informal trade and the black market have been growing, owing to the economic problems the country has been facing for a number of years now. It has been easy for the two to take root, because they normally do not require a lot of money to start and they can easily be managed, he said.
Although parallel economies are difficult to quantify, economist and former president of the Zimbabwe National Chamber of Commerce (ZNCC) Luckson Zembe said the amount of money outside of the banking system was a useful indicator.
– As the Reserve Bank has said, more than 50 percent of the money has been circulating outside the country. If you add to that the amount that is in informal trade and the local black market, you could safely say upward of 80 percent of the money is driving the parallel economy, Zembe said.
Zimbabwean bearer cheques have been used as cash since 2004, and are found in large quantities in various neighbouring countries such as Mozambique, South Africa and Zambia.
Unregistered foreign-currency dealers based in these countries do business with cross-border traders, so they can buy goods to trade in Zimbabwe when they return. Cross-border trade has been on the rise as the economy has declined.
The fast-track land reform programme that began in 2000 and led to the seizure of white-owned farms resulted in aid cutbacks and stringent borrowing measures being imposed by international financial organisations, such as the International Monetary Fund and the World Bank.
The economic shock was compounded in 2003 when a widespread shortage of cash in banks eroded confidence in the banking system.
The combination of these factors, including the disruption of the agricultural sector, a major foreign currency earner, coupled with President Robert Mugabes alienation of the West, brought a crippling shortage of foreign currency, basic goods and hyperinflation.
Kilde: FN-bureauet IRINnews
