Is it time for the Zimdollar to return?

Is it time for the Zimdollar to return? March 30, 2014 by Itai Zimunya Zimbabwe Standard

There is a rising tide of voices calling for the re-introduction of the Zimbabwean dollar as Zimbabwe’s monetary unit.

A cult of self-praising pseudo-pan Africanist scholars lead in arguing that the Zimbabwe dollar must come back to re-establish Zimbabwe’s financial sovereignty since the US dollar is technically not a Zimbabwean or African currency.

They write long articles which to some extent infect Zimbabweans with wrong medications.

Positively, the monetary authorities in Zimbabwe through the Reserve Bank of Zimbabwe (RBZ) argue that the economic fundamentals in Zimbabwe currently do not yet favour the return or re-creation of a Zimbabwean currency.

This article seeks to expand that Zimdollar debate and highlight the economic fundamentals around money and its role in an economy with Zimbabwe as the focal point. In general, the article strongly disagrees with the un-economic “sensationomics” propounded by Tafataona Mahoso and his kind.

Basically, it is important to engage in this debate using tangible and simple analysis based on principles of economics and not recycled political mythologies that always see the shadows of Britain and imperialism in all challenges confronting Zimbabwe.

Firstly, it is important to demystify the technocracy of monetary economics by simply defining money, share its characteristics and re-state its uses.

Economists generally agree that “money” is anything that is generally accepted as payment for goods and services and repayment of debts. It is a medium of exchange which can clear past and present obligations. Land, cattle, maize, platinum, ideas, Victoria Falls, the Rand, the US dollar, are all forms of money.

However, because it is practically impossible to always use “hard assets/money” to exchange or buy goods and services, the globally accepted currency is one that is defined by bank notes and coins, often referred to as “liquid asset/money” (because it’s easier to carry and move around).

Therefore, money is often defined in terms of the three functions or services that it provides. Money serves as a medium of exchange, as a store of value, and as a unit of account.

Money’s most important function is as a medium of exchange to facilitate transactions. Without money, all transactions would have to be conducted by barter, which involves direct exchange of one good or service for another.

The difficulty with a barter system is that in order to obtain particular goods or services from a supplier, there has to be a double coincidence of wants between two transacting parties. Zimbabweans experienced a bit of this in 2008 where in the townships, a splash of toothpaste bought a bundle of vegetables or some other commodity to suit the shifting human wants at that time and space.

In order to be a medium of exchange, money must hold its value over time; that is, it must store value. If money could not be stored for some period of time and still remain valuable in exchange, it would not solve the double coincidence of wants problem and therefore would not be adopted as a medium of exchange. Money may not even be the best store of value because it depreciates with inflation.

The reason why the Zimbabwean dollar collapsed is because it stored no value. It was a burden carrying loads of cash whose value fell every second. This is why, basically, we argue that to maintain the current regime of currencies with value is better for now.

Furthermore, money is an easily transported store of value that is available in a number of convenient denominations. It’s easier and convenient to carry a US$100 or 100 Rand bill to any bus station and get a service than to go with a hoard of six bleating sheep and try to negotiate the value with every passing bus.

At this point, it may be important to share the six basic characteristics of money.

Firstly, the essential quality of good money is that it should be acceptable to all, without any hesitation in the exchange for goods and services.

Secondly, money must be portable. Good money should be easily transferable from one place to another for doing business and making payment. The paper money is easier to carry because it has minimum possible weight than metallic (gold, platinum, tobacco, cattle or diamond) money. Modern trends now use plastic money or “cloud money” — meaning internet or sms banking.

Thirdly, money should be storable and it should not ordinarily depreciate with time. If the money used is perishable it will lose its value in a few days. Paper money has this quality of storability.
Fourth, good money is that which could be divided into small units without losing any value.

Fifth, money should be durable. It should not lose its value with the passage of time. The gold and silver coins do not wear out quickly and quality of money remains the same.

Sixth, good money should be made economically. If there is heavy cost on issuing more money, then that money becomes bad money. Good money is that which has low cost and more supply. This was the Zimdollar’s challenge as well, where the cost of printing one dollar was more than that dollar. It made no economic sense and that is the risk of prematurely bringing any new unstabilised currency.
At a macro-level, national money is the collection of a country’s wealth. Zimbabwe’s stock of tobacco, gold, platinum, diamonds, human capital, cattle and land is its “hard money”.

What the government needs to do is to manage its “hard money” to support “liquid money” which children can carry to the shops to buy sweets and bread.

I would agree however with a thesis that says Zimbabwe must prepare for her own currency. The best way for Zimbabwe to re-introduce her own currency “as money” is not through slogans of sovereignty, but through an inclusive set of strict and multi-connected medications.

These include, and not in any order a) building long term national domestic and corporate savings, b) stocking the national sovereign wealth fund, c) promoting a serious anti-corruption drive and facilitate the repatriation and or injection of fresh capital, d) internalising of expenditure through initiatives like the “buy Zimbabwe campaign”, e) good governance- as in, for example, loans must be given on the basis of productivity and not political connections and last but not least is f), beauty.

Money must be beautiful or have aesthetic value because citizens, especially children, must be proud to hold, share and spend their money.

Domestic banking and spending are very key macro-economic processes that contribute to a sustainable economic growth.

Itai Zimunya is a socio-economic researcher based in Zimbabwe. tanatsei@gmail.com