‘Too early to bring back the Zimbabwe dollar’

via ‘Too early to bring back the Zimbabwe dollar’ October 27, 2013 by Patrice Makova for The Standard

THE slowdown of the economy characterised by lack of liquidity and collapsing industries has renewed debate over the re-introduction of the Zimbabwe dollar.

Some analysts are of the view that the economy will not recover under the current multi-currency system, as the US dollar has proved elusive for most Zimbabweans.

But others insist that the immediate return of the Zimdollar will be disastrous given the prevailing environment.

Development economist, Prosper Chitambara said with the “painful” experience of the demise of the Zimdollar still fresh in people’s minds, it may take even longer to restore public confidence in the national currency.

“It’s re-introduction might result in further erosion of public confidence in the financial sector, precipitating disintermediation and a run on the banks, as people take rational steps to protect their wealth, including shunning the banking system altogether,” he said.

Chitambara said the Reserve Bank of Zimbabwe (RBZ) has been proposing the re-introduction of a Zimdollar anchored on gold valued by an independent body comprising all stakeholders, akin to the gold standard.

But he said the system has a number of problems, as the monetary base (money supply) was determined by the supply or production of gold.

This would result in the loss of control over economic policy and, in particular, over monetary policy, which would be determined by the rate of gold production, Chitambara said.

“If the rate of gold production slumps, it will mean that money supply will go down, and this may induce deflation,” said the economist. “If the rate of production of gold goes up, it implies that money supply will go up, which may induce inflationary pressures in the economy. This therefore leaves the economy susceptible to speculative attacks and recessions.”

Chitambara said certain benchmarks needed to be met for the return of the local currency. These include attaining a sustainable gross domestic product (GDP) growth rate of at least 7%, low and stable inflation and interest rates and reducing the high debt ratios to very low and sustainable levels.

He said there was need to increase the level of savings and investments to at least 25% of GDP; reducing the balance-of-payments deficit to less than 5% of GDP; and increasing the export level to at least 25% of GDP.

Chitambara said the foreign-currency reserves will also need to be built up to sustainable levels to anchor the Zimbabwe dollar, and to defend it in the event of a currency or speculative attack.

Zimbabwe National Chamber of Commerce (ZNCCs) chief economist Kipson Gundani said ideally a country was better off having its own currency.

But he said the case of Zimbabwe was different, as the absence of a local currency was not by choice but because of economic fundamentals.

Gundani said there was no guarantee that the Zimdollar would survive if re-introduced, as the country had no import cover, while capacity utilisation was below 40%.

“For predictability and stability, we are better off operating under the current multi-currency system,” he said.

Gundani said even if the local currency would come back alongside a basket of other currencies, it was unlikely to survive because people were no longer confident in it.
But some analysts were arguing that politicians and economists must not brush aside proposals to reintroduce a local currency.

An analyst, Ayanda Nyanga last week wrote an opinion piece on Nehanda Radio.com where he argued the economy would not be revived until the return of the local currency.

He said the value of the local currency was embedded in road infrastructure, plant, property and equipment, cars, furniture and fittings that were already there.
“We do not need foreign currency to trade these amongst ourselves,” said Nyanga.

He said the country only needed foreign currency when selling to a foreigner or Zimbabweans who wanted to take their money abroad.

“The crisis we find ourselves in is that we are failing to exchange these goods among ourselves because we do not have foreign currency to use as a medium of exchange, which is not rational since we need a local currency to trade these among ourselves,” he said.

The Zimdollar became worthless paper in 2008, forcing the government to introduce multi-currencies in February 2009.

President Robert Mugabe intends to bring back the Zimbabwe dollar during his five-year reign.

But Finance minister, Patrick Chinamasa insisted this will not be rushed, as the Zanu PF government was afraid its opponents would destabilise the currency.

Zimbabwe should rebrand currency: Analyst

Economic analyst and chartered accountant, Tapiwa Chizana said the Zimdollar should not return in its previous format, but that the country should have a new currency.

“There is a stigma associated with the Zimdollar, so a new currency will need to be appropriately rebranded to inspire confidence in the economy and market,” he said.
Chizana said a local currency with the correct characteristics would be required for more long-term growth and development.

But he warned that the introduction of a local currency in itself was not the solution.

Chizana said the economic policy related to the management of the currency was what is most important.

“I am hesitant to say the introduction of the currency will solve all our problems. The first step is to develop an acceptable monetary framework within which such a currency will circulate,” he said.

Chizana proposed a “mineral based” frame work.

“Thereafter, introducing the currency will have positive benefits to the country, and will stimulate the revival of the economy. There will need to be monetary mechanisms to encourage the circulation of the currency because that is what stimulates economic growth, ultimately,” he said.

Chizana said if for some reason, the currency is not globally accepted, its use locally would encourage the purchase of locally-produced and locally-available goods and services.

“Thus, for any given level of economic activity, more of the benefit accrues to the country and less drains out to other parts of the world,” he said.

COMMENTS

WORDPRESS: 12
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    Tjingababili 7 years ago

    DOES MUGABE USE THIS IMPERIALIST US CURRENCY!

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    Going back to the Zimbabwean Dollar will take the country backwards again further than it is now. Zanupf have control of the printing presses and will print as much money as they need to buy “real” money such as US$ while the rest of Zimbabwe will struggle to buy proper money with their useless Zim dollars. Pre 2008 well connected Zanupf thieves became US$ Millionaires and Zim$ Trillionaires by simply buying and selling between the two currencies and also being treated to a preferential exchange rate at the Banks. At all costs Zimbabweans must refuse to use a Zanupf introduced Zim dollar.

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    Fallenz 7 years ago

    Yes, whatever they tried to name it, if ZANUPF or any other lunatic has control of the currency, it will be the death. A return to the hyperinflation of 2008 will destroy what little economy is left. One of the only sound decisions was to go to a stable currency… but that decision was required because of the unsound decisions to run the presses night and day printing Zim dollars until they became worthless. (I still carry a $100 Billion note in my wallet just as a reminder of idiotic ZANUPF fiscal policies.)

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    I have been reliably informed by a very loose canon chef, who should know, that the Zimbabwe dollar will be back in circulation within 6 months.

    Zanu-PF’s imperative is to be in total control and cannot countenance using imperialist currencies.

    It’s not about economics and prosperity. It’s all about retaining total control over the masses.

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    Bruce 7 years ago

    Its not so much about the currency, the main problem is the confidence of the people and the world at large in the ZANU PF and Mugabe in particular. The Zimdollar may be called even any name, thus why the Usd in Zimbabwe based on PPP seem weaker than the usd in other countries in particular USA, where its cames from why, the Usd trading in Zim suffers from Mugabe mismanagement. As long he is in power, returning any wjole Zim currency is disastrous. Economist in Zimbabwe, why are you scared of pointing a the effect of political risk if Mugabe and ZANU PF is in power on any currency that may be put in place. Why can not you answer what happened to the industries. MUGABE and ZANU PF are a serious RISK that can not be mitigated by any one. No one is willing to pay the price.

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    Austin Vuma 7 years ago

    Zanu is between a hard surface and a rock, whether they bring the Zim dollar or not the difference is the same “They are DOOMED!!!

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    Gondobwe 7 years ago

    VaGoche promised salary increments to public servants by the end of year, hezvoka tatosvika pasina chiripo. The truth is the government is broke but has lots of money for Zanu-PF functionaries. Bringing back the Zim$ would be the demise of Zanu-PF. They know it.

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    masvukupete 7 years ago

    The funny thing about money is its ability to mutate its value base. That is one of the characteristics of money, and it is difficult to obtain. Ask the United States and they will tell you. My thinking money is like energy, it cannot be created, it can only be transformed from 1 type to another through the physical space. It has many forms that hold it together although some of its value bases are more powerful over others at different times. Confidence is one of them, but whose confidence. Its firstly the confidence of the people who own the money, not the government silly but the people (ordinary Zimbabweans). The foreigners also have a hand to play on the confidence but it is the people of the nation that determine the confidence. Products also have a major contribution on the value base of any currency. The more refined the products (value addition) the better the currency. In the value addition concept, the value form is being transformed from labor, power, availability, other raw materials, and the confidence of the market to the product into a higher form of value (energy). This is my understanding of money and currency. In 2008 we did not have any of the above hence our money lost all its value (energy). It did not dissappear but was converted into SA products, and Chinese products. So our government should look at money as something that cannot be created but only transformed from 1 form to another. We have the demand for products (people’ needs) that should be fulfilled by turning those demands into money through products.

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    masvukupete 7 years ago

    The value of money is constant for our people and is limited to what our demands are. The value therefore has a ceiling. If Mbuya vangu vari kwaMazviiwa has all her needs (some of them she doesnt even know she has) satified then the economy will be a multi trillion. However by creating products we start to fuel needs and thereby “increasing” our money. The more people an entity has access to, the better the wealth of that entity. China has a billion people who it can access for products (money). The confidence in Chinese (Asian) products is increasing hence the increase in the value of their money. Those are the facts that any government should know. Without dealing with the issue of confidence and products a currency is not worth anything.

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    Chivulamapoti 7 years ago

    I remember when a one ply roll of Charmin toilet paper in the USA, had more value ‘per sheet’ than the Zim$. It will happen again, just wait and see. ZANU-PF are all monetary fools and lead by Mr Greed himself, Mugarbage!

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    Chipo matinesere 7 years ago

    When is everyone going to wake up and realise that as long ad Mugabe and his thieves are still in power, there is never ever ever going to be any economic and political change in our beautiful country, which has been ruined by man together with his cronies. He needs to know that Zimbabwe is not his personal property. God help us all Zimbabweans & Africa as whole. It ‘s sad. Guerrillas cannot run a country.

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    Fallenz 7 years ago

    Very correct. Mugabe considers Zimbabwe and its people to be “spoils of war”. When he says Zimbabwe is his, he means it literally. Little wonder he and his cronies consider the national treasury fund to be their personal piggy bank in unbridled, insane greed. Instead of his claim of freeing the nation, he simply saw it as a prize and wanted to loot it… and has… to its detriment.