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THE only legal currency in Zimbabwe is the Zimbabwe dollar, although there is a concession that buyers of goods or services, not the sellers unless in special circumstances, can opt if they wish to pay in United States dollars or other approved foreign currencies.
A legal currency is exactly what it says, the currency that people can demand payment in and buyers can demand to pay in, and that debts in that currency can be enforced by law and in the courts and that full payment in that currency cancels the debts.
The critical point is that it is the buyer of the goods or the payer of the services who makes the decision of which currency they choose to pay in. The seller cannot demand anything, but local currency unless the required special permission is given.
This means that the foreign currencies used to buy goods and services are not full legal tender currencies in Zimbabwe, but rather an agreed method of transferring payment between buyer and seller.
When the Reserve Bank of Zimbabwe has finalised the modalities of transfers of gold tokens via gold-token bank accounts, the tokens will not become a currency, but a buyer and a seller can agree to transfer tokens between their accounts to meet the debt. But it will require the agreement of both, and both will need to have the special accounts to allow that transaction to take place.
But it will not be a currency because no one can demand payment in gold, or demand that a seller accepts gold. The token transfers will simply be an additional way people can conveniently transfer something of value.
All this is important when we consider the criminal activity of the Harare City Council last week when it decreed that all payments from this month had to be in US dollars.
The decree was shot down in flames the following day by the Government, and the council has to change its mind and conform to the law.
While some small tuckshops and some others have tried to break the law and demand foreign currency payments, Harare City Council is the second largest entity in Zimbabwe after the Government itself, and not only needs to conform to the laws but also needs to consider its own residents, all 1,6 million of them with something like at least a quarter having to make direct payments to the council in rates and for water, garbage removal and other services.
Where does the council suppose that most of those people will be able to earn US dollars? To treat its own population with such contempt shows a breath-taking arrogance, and we have seen a lot of arrogance in this particular council in the past.
Some ratepayers do opt to pay in foreign currencies, as they can under the law, and presumably the council has been accepting foreign currency payments as it is entitled to do.
But to try and make such payments in a foreign currency compulsory is a total reversal of the legal position. The council would be better to get all ratepayers to pay on time, rather than try and get those that do pay to use the council’s preferred currency.
The Government itself uses its powers when it comes to tax collections and the currency the taxpayer must pay in. The general rule is that taxes are paid in the currency in which the underlying profits or transactions are earned. So if you earn in local currency you pay in local currency and what you earn in foreign currency is taxed in foreign currency.
As a lot of taxpayers deal in both their tax bill for each tax is split between the currencies the taxes apply to. That at least is logical.
The Government went a bit further when it comes to business taxes, income taxes payable by business owners or the company taxes payable by corporations, in that it is demanding the local currency taxes in local currency, with zero exceptions, and demanding half the foreign currency component in local currency.
This is totally legal since it is demanding a greater payment in the only legal tender, which anyone can do. The multi-currency regime in Zimbabwe is a temporary measure, not a permanent state of affairs.
All countries prefer a single currency, the legal tender for that country, which in almost all cases is either the local currency or, like the West African franc or the Euro, a supranational area currency for a region, but still a local currency for each country within that region.
Zimbabwe tried using the US dollar as basically the local currency, but that generated a lot of problems. There were serious costing problems, with a large swathe of manufacturing closed down for a start.
Then there were the actual shortages of foreign currency, and while a lot of people pretended it was working, the build up of debt, in effect fake US dollars in the system, eventually wrecked the idea.
The reintroduction of the local currency has had its cyclic problems. The Government was not creating new Zimbabwe dollars through debt, having switched to balanced budgets and any borrowing being approved borrowing for capital development where there was an instant source of new income that would pay off the debt. But new local currency was being created within the system and each tap has had to be tracked down, identified and switched off.
This saw a few weeks ago the Ministry of Finance and Economic Development taking over the job of buying the 25 percent of foreign currency exporters have to sell.
The Ministry does this in a way that does not increase or decrease the amount of local currency. All taxes go into the Consolidated Revenue Fund, but there are multiple accounts there including one in Zimbabwe dollars and one in US dollars.
When the Ministry buys the surrendered export money there is a simultaneous transfer of Zimbabwe dollars to the account of the exporter and a transfer of US dollars to the US dollar account in the Consolidated Revenue Fund.
When the Government allocates US dollars to the importer auctions and the bankers wholesale auctions, there is again simultaneous transfers of local currency from successful bidders into the correct account and payment of the corresponding foreign currency to the banker accounts.
In both cases the fund total remains constant, with just the currency ratios varying.
The Consolidated Revenue Fund can increase, as Zimra pays in the taxes, and can decrease, as the Finance Ministry authorises withdrawals to pay Government bills, so long as those are approved by Parliament during budget votes, but the buying and selling of foreign currency does not change the fund, just moves money between accounts within the fund.
Everyone is reasonably sure now that all the taps creating local currency have been turned off. This means the stability that is fast being approached can be continued.
That allows, as people gain confidence, that more and more dealing will be done in our money, not other people’s. That in turn moves Zimbabwe to the point where the local currency becomes the sole transaction currency.
leeroy