By Shamiso Mangwengwende, Associate
Foreign currencies have once again become legal tender in Zimbabwe. A few days ago the government gazetted Statutory Instrument 85 of 2020 called the Exchange Control (Exclusive Use of Zimbabwe Dollar for Domestic Transactions) (Amendment) Regulations, 2020 (No. 2). The Statutory Instrument legalised the use of foreign currency for domestic transactions i.e. transactions carried out within Zimbabwe.
The Statutory Instrument refers to “free funds” which are defined in Statutory Instrument 109 of 1996 as:
“money which is lawfully held outside Zimbabwe by a Zimbabwean resident and which was acquired by him otherwise than as the proceeds of any trade, business or other gainful occupation or activity carried on by him in Zimbabwe.”
Some examples of lawfully obtained free funds are diaspora remittances, proceeds from exports and salaries earned from an employer that is authorised to pay its employees in foreign currency. This move is intended to make it easier for Zimbabweans to transact during the Covid-19 crisis. There is no given timeline for how long this will last and the indication is that the situation will be continuously assessed as the country deals with the ongoing crisis.
Further to that, the RBZ has fixed the USD to ZWL exchange rate at 1:25. The RBZ had recently liberalised the exchange rate system in February 2020. In a statement on its website the RBZ said that,
“…Government, through the Bank, has suspended the managed floating exchange rate system to provide for greater certainty in the pricing of goods and services in the economy. In its place, the Bank has, with immediate effect, adopted a fixed exchange rate system at the current interbank level of ZWL$25 to the US$. This measure will be reviewed when markets stabilise from the effects of COVID-19.”
A few questions arise from the introduction of these measures by the government:
Does this Statutory Instrument apply to debts existing prior to the enactment of the new SI? – The answer is no. The SI does not apply to existing debts and obligations. It only applies to current transactions until such a time that the government directs otherwise.
If and when the SI is no longer applicable, will a creditor be able to recover a debt in foreign currency that arose during the time when the SI was applicable? – The answer to this is not clear at this point. It really will depend on the wording of the SI that will be used to outlaw the use of foreign currency if and when it happens. If the law is not clear it will become an issue for the courts to determine. Based on the precedent that has been set on this subject matter it is likely that a creditor would not be able to recover a debt in foreign currency and may only be able to make a claim in Zimbabwe Dollars at the bank rate of the day.
It still remains to be seen whether or not these measures will ease the burden on the transacting public as intended.
Feel free to ask any questions that you might have in the comment section or contact one of our lawyers directly for any assistance that you may require.
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