ZIMBABWE central bank abandoned a plan to convert half of its export earnings into South African rand and euros as it explores ways to ease a shortage of dollars.
In a statement on Tuesday, the institution said it will now require 50% of export earnings to be transferred to a Reserve Bank of Zimbabwe account. The central bank will then immediately credit the same amount, plus a 5% “export incentive,” into an authorised bank account for the exporting company.
Zimbabwe, which abandoned its own currency in 2009 because of hyper-inflation, trades mainly in U.S. dollars, while the rand, euro, Botswana pula, yen, yuan and Indian rupee are also legal tender. The move comes as demand for cash has led to shortages in an economy struggling to attract investment as it recovers from a decade-long decline.
It marks a reversal from last week, when the central bank said it would try to ease demand for dollars by converting 40% of foreign-exchange receipts from exports to rand and 10% to euros. The regulator also limited cash withdrawals and unveiled plans to print “bond notes” with face values ranging from two to 20 U.S. dollars, drawing scorn from critics as signaling a return to the local currency.
The new notes amount to “play money” and the measures suggest Zimbabwe is “edging closer to the brink of a new currency crisis,” Gary van Staden, an analyst at NKC African Economics in Paarl, South Africa, said in an e-mailed note on Tuesday. “That could herald significant instability in the country. As the cash shortages spark panic, there are new signs that ailing President Robert Mugabe may not see out his current term let alone be prepared to start a new one in 2018. ”
The start of state-sanctioned seizures of white-owned commercial farms in 2000 by black subsistence farmers deprived of land during colonial rule slashed exports of crops ranging from tobacco to roses, triggering a near decade-long recession.
The local currency was abandoned as inflation soared, triggering other problems for Zimbabwe. As the dollar strengthened against currencies like the rand, imports became cheaper, causing plants in Zimbabwe to shut down and cut local production.
Exporters being paid in currencies other than the dollar will be able to deposit all of their earnings directly into their bank accounts, without placing half in a central bank-controlled account, the bank said on Tuesday. The 5% incentive bonus applies to all earnings from any currency, it said.