Currency reform no magic bullet

EDITORIAL COMMENT

FINANCE minister Mthuli Ncube this week wrote an interesting opinion-editorial piece in the Financial Times (UK) — which we are carrying on Page 14 — basically saying introducing a new currency, meaning bringing back the Zimbabwe dollar, was the country’s only viable option.

In the article, Ncube went on say the multi-currency system — the US dollar, British pound, South African rand, the euro, the Chinese renminbi and the Botswanan pula — had become outdated. He said the currency regime was a tourniquet, not a cure.

Ncube — who used to be a rand advocate before his flip-flops — said the de facto dollarisation, which brought exchange rate stabilisation in 2009 and helped end hyperinflation
which had decimated the Zimdollar at the height of the economic meltdown in 2008, was undermining Zimbabwe’s economy reliant on exports. He said the strong dollar stifled
Zimbabwe’s exports and competitiveness.

“Without our own currency, we have had no control of monetary policy. We have had no mechanism to stimulate economic activity — not exports, nor foreign direct investment — or to
deal with downturns in international markets. That is why the government must introduce its own new, and permanent, fiat currency,” Ncube said. “To be clear, at this time, in
this year, any and every responsible Zimbabwean government would be doing the same as we are today. This is not a ‘political’ decision, therefore, but simple economic and
geopolitical necessity. Zimbabwe’s recovery will still depend on export-led growth. Had the opposition been in office, they too would now be introducing a new currency — just the
same — despite their present protestations to the contrary.”

He added: “Change had to be driven more forcefully: it was clear the RTGS had to be designated the sole legal tender. Admittedly, the government did not manage this without
fault. The implementation was too indiscriminate, with international and export facing companies under its purview, causing disruption to the flow of business.”

Most of the issues Ncube raises are generally correct, but the problem is lack of context, interconnectedness of things in the local socio-economic and political environment, and
nuance.

First, the truth is that government was forced to bring back the Zimdollar without the enabling conditions and meeting benchmarks to stop the march of dollarisation and failure
by government to pay its workers, including the security forces. This was a political decision.

Second, and linked to the first point, the economic environment — macro-economic fundamentals benchmarks — for the return of the Zimdollar were not right. Third, the Zimdollar return has caused so much damage to the economy, including theft of US$7 billion from local creditors. Individuals and companies also lost massive value.

Fourth, currency and exchange rate volatility won’t go away, while inflation will keep on rising. Fifth, confidence in the Zimdollar will be minimal and as a result the currency
will be shredded by market forces. Indeed, business and investor confidence will evaporate. Lastly, the negative business climate will worsen and Ncube’s austerity programme will
fail unless underlying structural and political issues are resolved. Simply bringing back the Zimdollar is no magic bullet.