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Zimbabwe’s economic crisis: will adopting foreign currency help to increase remittance flows through formal channels?

Sanket Mohapatra's picture

Zimbabwe's government recently announced a partial dollarization, declaring the U.S dollar and other foreign currencies as legal tender alongside the Zimbabwean dollar in its efforts to fight a crippling hyper-inflation (after announcing the launch of a 100 trillion Zimbabwean dollar note in January). This measure could make remittance transfers more visible.  These have been often sent through unofficial channels so far, the result of a large parallel market premium since the official exchange rate has lagged behind the parallel market rate.

The UN news agency IRIN reports that the long queues that used to form outside exchange bureaus (often for exchanging foreign currencies that were hand-carried and sent by other means by migrants into the country) have now shifted to the banks where formal money transfers are processed.

The ongoing economic and political crisis in Zimbabwe has caused GDP to collapse by more than 50 percent, inflation to reach 231 million percent in July 2008, and the share of people living in poverty to increase to more than 80 percent of the population. Remittances to Zimbabwe from its 3 million emigrants (a quarter of the population) who fled the crisis are estimated to be between $360 million to $1 billion annually—the actual figure is likely to be even higher. These flows may have helped to stave off a complete collapse of the country and even more misery for the poor.  
Some questions to consider:

  • With acceptance of foreign currencies as legal tender and elimination of the black market premium, will remittances through formal channels increase and will more of it reach the intended beneficiaries?
  • Will the share of remittances sent as goods or as coupons for purchase of certain types of goods such as petrol (through websites such as decline?
  • Will there be more acceptance and engagement with the Zimbabwean diaspora if their financial contribution is now more visible? 


Submitted by David Kuhn von Burgsdorff on
Most Zimbabwe's 2-3 million emigrants live in South Africa. Over the past few years, the majority of the total value of remittances from Zimbabweans living in South Africa seem to have been in kind; in the form of cooking oil, maize, clothes, and other consumer goods, due to the acute shortage of these goods in Zimbabwe. Following the return last year of a somewhat stable political and economic setting, goods have returned to the shelves, and with it, remittance flows have increasingly become monetary. The dollarization, and the acceptance of the SA Rand in Zimbabwe, seem to have been a strong stimulus for this development. However, it is estimated that over 90% of flows from South Africa to Zimbabwe are still informal, because the vast majority of migrants in South Africa remain undocumented, denying them access to form remittance channels (banks and money couriers). This means that migrants are forced to use informal channels and often face exorbitant charges of 20% or more. Since remittance flows seem to be elastic, a reduction in these costs and constraints faced would be likely to bring about a huge increase in recorded flows. Hence, in order for remittances to play an important role in the country's reconstruction, an acute development policy priority must be to do exactly that. I am actually just starting to write my Masters dissertation on precisely this topic; any comments/pointers would be much appreciated.

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