THE decision by government this week to abolish the
multi-currency regime and re-introduce the Zimbabwean dollar as the sole legal
tender could be catastrophic as the local currency’s value may tumble against
major currencies, plunging the country into hyperinflation.
While some captains of industry and analysts welcomed the
move, others were sceptical and critical.
The Zimdollar, which was initially abandoned in 2009 after
being ravaged by severe hyperinflation, this week became the country’s sole
currency through Statutory Instrument (SI) 142 of 2019, known as the Reserve
Bank of Zimbabwe RBZ (Legal Tender) Regulations.
In 2016, government introduced the bond currency to the
basket of currencies, a fiat currency which was ostensibly meant to incentivise
exporting firms.
“These regulations may be cited as the Reserve Bank of
Zimbabwe (RBZ) Legal Tender Regulations 2019. Subject to Section 3, with effect
from 24th June 2019, the British pound, United States dollar, South African
rand, Botswana pula and any other foreign currency whatsoever shall no longer
be legal tender alongside the Zimbabwe dollar in any transactions in Zimbabwe,”
part of the SI said.
“Accordingly, the Zimbabwean dollar shall, with effect from
the 24 June, 2019, but subject to Section 3, be the sole legal tender in
Zimbabwe in all transactions.”
The rationale to abandon the multi-currency system, which
brought relative stability on the market when it was introduced in 2009, as
explained by Finance minister Mthuli Ncube this week, is to restore the central
bank’s monetary authority, thereby containing spiralling commodity prices and
inflation.
“What we are trying to do is restore full monetary policy
where the central bank can conduct monetary policy using the array of tools
that are necessary for managing monetary policy such as interest rates, use of
a monetary policy committee to govern things like targeting money balances or
even targeting inflation,” Ncube said.
“Basically, the multi-currency regime, which had by the way
become a mono-currency in favour of the US dollar, was favouring those with
access to US dollars; those with access to US dollars were facing no change in
inflation at all for the last three years.”
However, the basis for adopting a basket of currencies a
decade ago was supported by the need to stabilise Zimbabwe’s fragile economy in
the absence of macro-economic fundamentals which resulted in the decimation of
the local dollar, amid spiralling inflation which peaked to 89,7 sextillion
percent on November 14, 2008.
Now, a decade later Zimbabwe — still deep in the throes of
an intractable economic crisis — is reeling from unstable macro-economic
fundamentals not conducive for the return of the local dollar. The local unit,
a combination of electronic balances, bond coins and notes already in
circulation, has failed to hold its own against major currencies, particularly
the ever firming United States dollar.
Official figures show that inflation has risen to 97,8%,
though renowned US economist Steve Hanke forecasts it to be hovering at more
than 300%. Ironically, Treasury projects inflation to recede below 14% by
year-end, tamed as it says, by the range of austerity measures currently being
implemented.
With Zimbabwe’s agriculture sector, which used to be the
mainstay of the economy, ruined by former president Robert Mugabe’s chaotic
land reform programme of 2000, experts say the southern African country’s
decision to abandon the multi-currency system, while upholding the local dollar
as the sole legal tender could lead to an all too familiar path of
hyperinflation.
Ditching the basket of currencies, analysts say, will exert
inflationary pressures on the local currency, unless backed by foreign
currency, gold reserves and exports.
In February, government liberalised the exchange rate,
resulting in the RTGS dollar tumbling in value against the US dollar and other
currencies. It is now pegged at 6,3 to the US dollar on the interbank market,
while on the parallel market it has soared to 13.
Critics of the return of the Zimbabwean dollar, which is
now the monetary unit effectively in circulation, say that it is imperative to
ensure macro-economic stability and restore public confidence before the
country can start trading with its local currency. They say the real value of a
currency lies in the public confidence besides its intrinsic and market value.
But, with memories of Zimbabwe’s hyperinflation era still
fresh in their memories, confidence appears to have waned as the local unit
continues to tumble against currencies of choice, necessitating government
intervention.
Coupled with that, Zimbabwe is also struggling to
extinguish an estimated US$20 billion debt stock, a situation which has
restricted the country from unlocking fresh lines of credit perceived to be key
towards mending the sbattered economy.
Bindura University commerce lecturer Felix Chari said in
the absence of structural economic reforms, Treasury’s decision to abandon the
multi-currency regime would stoke inflationary pressures, and render the local
unit worthless.
“It was premature to reintroduce the local currency in the
absence of sound macro-economic fundamentals required to stabilise the economy.
The Zimbabwean dollar is vulnerable to inflation due to low levels of
productivity and exports. Inflation will continue to rise as the Zimbabwean
dollar devalues,” Chari contends.
Former finance minister Tendai Biti, who served in the
inclusive government that saw Zimbabwe adopting dollarisation as an official
currency policy, said the scrapping of the multi-currency regime would spark
civil unrest, with retail shops running dry and the local unit depreciating.
“It is insanity, it is total madness. You cannot introduce
a new currency when the macro-economic fundamentals are not there. We have a
crisis of confidence, a crisis of legitimacy,” Biti said.
“You are going to see a massive shortage of goods in the
supermarkets. You are going to see disinvestment in the country. There will be
massive externalisation. You will see massive civil unrest. It is a major
security threat.”
However, other analysts say the Zimdollar’s return was
necessary even in these conditions. Zimbabe Independent
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