Published on People Move

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

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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 Mukuru.com) decline?
  • Will there be more acceptance and engagement with the Zimbabwean diaspora if their financial contribution is now more visible? 

Authors

Sanket Mohapatra

Associate Professor, IIM Ahmedabad

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