Economists differ on rand adoption, reintroduction of Zim dollar 

Source: Economists differ on rand adoption, reintroduction of Zim dollar – NewsDay Zimbabwe January 9, 2018

ECONOMISTS yesterday expressed divergent views over adoption of the South African rand and re-introduction of the local currency, with top government economic analyst Ashok Chakravarti telling MPs that Zimbabwe needs to either adopt the rand or re-introduce the Zimbabwean dollar to solve the foreign currency and cash crisis.

BY VENERANDA LANGA

But, another economic and trade analyst, Gift Mugano, differed saying, while it was difficult to run the economy in United States dollars, it was impossible to adopt the South African rand in an informal arrangement, as Zimbabwe would need to discuss the issue with South Africa first, and would end up enriching South Africa’s foreign currency reserves, as they would order the rands in US dollars, while South Africa just prints the rands for Zimbabwe.

Chakravarti’s argument, during his presentation to legislators at a post-budget seminar for MPs at a Harare hotel, were that dollarisation had not succeeded in any country in the world on a long-term basis, and was unsustainable.

“We cannot have a new economic order sustained by someone else’s currency, and so we need our own currency, and there are two solutions to it of which one is to adopt the currency of our main trading partner, which in our case is South Africa, and adopt the rand informally in the same way we adopted the US dollar in 2009,” he said.

“The second solution is to have our own currency, and the question will be how do we maintain the value of the Zimbabwean dollar? My proposal is that we release a Diaspora bond of $1 billion, which can back the new Zimbabwean currency,” he said.

Chakravarti said in order to ensure that people have confidence in the Zimbabwean currency, so that it is not misused by the government through issuance of Treasury Bills, the solution will be to take out the Diaspora bond of $1 billion and hire an international bank outside the country to hold on to it for Zimbabwe in real money.

But Mugano said it was impossible to adopt the rand informally, as it is not reserve currency, like the United States dollar.

“We cannot introduce our own currency. The proposals by Chakravarti are very sound from a mathematical point of view, but it is the same mathematical equation done by the Reserve Bank of Zimbabwe, which brought in $200 million bond notes which they said were equivalent to US dollars, but it all went in tatters. If we bring the Zimbabwean dollar, it will crash overnight like the bond note.”

Mugano said the best solution was to increase exports and stimulate production.