Can Zimbabwe Switch To The Rand To Balance Prices?

It's impossible to say whether or not the switch to Rand will be acceptable to the Zimbabwean government.

South African Rand currency.
South African Rand currency. Inked Pixels / Shutterstock.com

The new millennium brought currency chaos to Zimbabwe. As the state currency failed due to hyperinflation, the government cobbled together a multi-currency approach to cover the country’s need for useful cash. US Dollars, Euros, South African Rands, Dollar-pegged bond notes, and a smattering of other currencies facilitated trade while Zimbabwe came up with a more viable long-term solution. This volatility has been an exciting time for currency investors; not so much for Zimbabwean consumers. 

The aforementioned solution was released in February 2019. The RTSG (Real-time Gross Settlement) Dollar was meant to function as the new national currency. Unfortunately, it too has been inflating, such that the price of local goods is starting to spin out of control in some cases.

Much of this is due to the nation’s dependence upon the US Dollar. The most desired currency in the world, the US Dollar is used to settle Zimbabwean import deals. Because the Dollar is the final word on what products enter the country, it is only natural that its value will be amplified relative to the BTSG. Critics worry that another cycle of hyperinflation will render the BTSG worthless.

However, Zimbabwean billionaire Strive Masiyiwa thinks he has identified a simple solution. If Zimbabwe were to switch the currency accepted for all goods and services to South African Rands, this could arrest the downward spiral. The Rand is easily the most stable regional currency and is in greater supply than the US Dollar. Since South Africa and Zimbabwe are close and cordial trading partners (both geographically and politically), using the Rand could bring stability and efficiency to these markets. Not only would such a move make this an amazing opportunity to buy South African Rand, it could be accomplished “overnight”, according to Masiyawa. 

For those who do not live in Zimbabwe, this quick fix may be possible because a whopping 80% of Zimbabwe’s imports come directly from South Africa. As of now, these imports are paid for in US Dollars. However, it would be easy enough to complete these transactions in Rand, which is a more easily accessible currency than US Dollars within Zimbabwe anyway.

While this move would make the RTSG nearly worthless in a practical sense, it could keep Zimbabwe from descending once more into currency chaos.

Masiyiwa also points out that using Rands at all stops in the South Africa to Zimbabwe product pipeline would dramatically cut costs. He says that it’s not uncommon for Zimbabwean consumers to pay 3x the price for a South African loaf of bread, compared to the cost of that same loaf of bread in South Africa. 

Much of that price difference is due to currency conversion costs, and the upward mobility of the US Dollar relative to the RTSG. It’s easy to understand that increased confidence in the Dollar (again, relative to the RTSG) would only exacerbate this problem. RTSGs would be traded for ever less US Dollars, which would buy ever less food and imports. Local prices could only be driven up in this process.

It’s impossible to say whether or not the switch to Rand will be acceptable to the Zimbabwean government, or if it will be as effective as Masiyiwa says if it is implemented. However, if it works, it would be an elegant solution to currency woes, without Zimbabwe even being required to enter a new trading or customs union. For Zimbabweans looking for any workable solution, Rand may be the path forward.

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