Zimbabwe: Is the Multi-Currency System Legal?

PHOTO

After 2013 there have been many twists and turns of fiscal and economic policy but the Government has fairly consistently tried to restore the local currency – bond currency, RTGS dollars, ZiGs – as the country’s sole medium of exchange. In practice the Government has failed because foreign currency is still used in about 80 per cent of transactions in the country. But what is the position in law – is it legal to use foreign currency in Zimbabwe?

Banning of the Multi-Currrency System

In 2019 the Government published the Reserve Bank of Zimbabwe (Legal Tender) Regulations, 2019 (SI 142 of 2019) [link], to declare that foreign currencies were no longer legal tender. The regulations were in effect re-enacted as section 23(1) and (2) of the Finance (No. 2) Act, 2019 [link], which read as follows:

“(1) For the avoidance of doubt … it is declared that with effect from the second effective date [24th June 2019], the British pound, United States dollar, South African rand, Botswana pula and any other foreign currency whatsoever are no longer legal tender alongside the Zimbabwe dollar in any transactions in Zimbabwe.

(2) Accordingly, the Zimbabwe dollar shall, with effect from the second effective date … be the sole legal tender in Zimbabwe in all transactions.”

This seems to have settled the matter: no foreign currency is regarded as legal tender in Zimbabwe, save for a couple of small exceptions mentioned later in section 23 which need not concern us.

Neither SI 142 of 2019 nor section 23 has been repealed, so unless they have been overridden in some other way they remain in force, which means that foreign currencies are not legal tender in Zimbabwe.

Restoration of the Multi-Currency System?

The apparently clear legal position has been clouded by amendments to the Exchange Control Act. Although the amendments were made initially by statutory instruments, they were subsequently re-enacted in annual Finance Acts so we can safely ignore the statutory instruments and consider only the amendments that are set out in the Finance Acts.

The Exchange Control Act was amended in 2019 [by sec 31 of the Finance (No. 3) Act 2019 –] to insert a new section 11 and a schedule which together allow so-called civil penalties – in effect fines imposed by the Reserve Bank – to be levied on offenders who contravene the Act. Subsection (1) of the new section 11 sets out the scope of the Schedule in the following terms:

“(1) The provisions of the Schedule apply to any infringement of this Act in respect of which it is provided that a civil penalty is payable.”

In 2022 section 11 was amended to insert a new subsection (2a). In its present form – it was replaced in 2023 by sec 34 of the Finance Act 2023– the new subsection reads as follows:

“(2a) The provisions of the Schedule, in so far as they expressly or implicitly permit the settlement of any transactions or the payment for goods and services in foreign currency, shall, notwithstanding sections 22 and 23 of the Finance (No. 2) Act, 2019 (No. 7 of 2019), be valid until the 31st December, 2030.”

The government believes that this subsection (2a) restores the multi-currency system in Zimbabwe until the end of 2030. The Deputy Minister of Finance, Economic Development and Investment Promotion said as much in the National Assembly, and many economists and some lawyers share his belief. Are they correct?

Effect of sec 11(2a) of the Exchange Control Act

The first point to make is that section 11 of the Exchange Control Act is a very odd place indeed to find a provision extending the whole multi-currency system until 2030. The section sets out the scope of a schedule which allows the Reserve Bank to impose fines on people infringing the Act. If the Government and Parliament had wanted the new subsection (2a) to make foreign currencies legal tender for all transactions, they could surely have found a better place and a clearer and more direct way of doing it – for example, by amending Part VI of the Reserve Bank of Zimbabwe Act, which deals with legal tender.

The second point is that the wording of subsection (2a) shows its purpose is more limited: all it does is say that certain provisions of the Schedule – no other law – will remain valid until the end of 2030. The provisions of the Schedule deal exclusively with the assessment, imposition and payment of civil penalties: they have no wider application. Neither they nor section 11(2a) can be construed as extending the whole multi-currency system, except in the very narrow context of civil penalties under the Exchange Control Act.

Hence section 23 of the Finance (No. 2) Act 2019 remains in effect, apart perhaps from not applying to certain civil penalties, and as a result foreign currencies are not legal tender for local transactions – and have not been since 2019.

This does not necessarily mean foreign currencies cannot be used for local transactions, as we shall explain.

Meaning of Legal Tender

The term “legal tender” is defined in one well-respected legal dictionary as::

“The money (bills and coins) approved in a country for the payment of debts, the purchase of goods, and other exchanges for value.”

Under our common law, an offer to pay a debt in legal tender must generally be accepted unless the contract specifies some other form of payment. So if I borrow US$100 from you, I can repay the debt in the equivalent number of ZiGs at the official rate – unless our loan agreement stipulates that repayment must be in US dollars, in which case I must comply with the contract even though US dollars are not legal tender.

In South Africa, incidentally, there is a statutory provision that makes it a criminal offence to pay debts in anything other than legal tender, but there seems to be no equivalent provision in Zimbabwe so the common law applies.

This means that commercial transactions can take place in foreign currencies even though they are not legal tender. Banks and financial institutions can carry on their business in foreign currencies, though if they want their overdrafts and loans to be repaid in foreign currency they should ensure that their loan agreements specifically state it.

Conclusion

We conclude that foreign currencies have not been legal tender in Zimbabwe since 2019 but that they may continue to be used in most transactions.

We must add a few cautionary words. The country’s economic management has been erratic, to put it kindly, with shifts and about-turns in policy. Furthermore, it has been conducted in a confusing way: bewildering showers of statutory instruments have been issued, often contradictory and obscure, sometimes of doubtful validity. Somewhere in this legal mess there may be a legal instrument that negates our conclusion about the multi-currency system; if so we can only apologise and plead understandable error.

What we can say is that economic and monetary policies, like all government policies, must be conducted according to law and the law must be clear. The sooner the Ministry of Finance, Economic Development and Investment Promotion reviews all the legal instruments it has issued over the past few decades, repealing those that are no longer needed and restating its policies in valid and clearly drafted new laws, the better it will be for the financial sector, the economy and the country as a whole.