Yes, Zimbabwe deserves immediate attention on currency adoption before worsening economic deterioration. But, is the adoption of the foreign currency a sustainable panacea to the Zimbabwean economy?
By Elvis Dzvene
It’s not that obvious. The first step towards reviving our economy is to sort out the currency issue. To be precise, the economy should drop the bond notes and focus on industrialisation in order to boost domestic production and facilitate exportation of local products so that Zimbabwe will be competent on the international market. The success of whichever currency that we are going to adopt will depend on the strength of industry in order to deal with capital flight, otherwise we will go circles without any positive outcome.
The currency approaches to our economy Is already on our fingertips and it’s not a secret that we have three choices as clarified by the new Minister of Finance, Professor Mthuli Ncube. The choices are to adopt the US dollar, Rand or, adopt Zim dollar. On option three of adopting Zim dollar, let it be a clear no, there is nothing bad to have our own currency. But the Zim dollar will turn towns into ghosts’ towns since there is a lot of work that must be done first. Ground work on issues pertaining economic stability thereby ensuring that the central bank is independent from being abused with the government, complying with laws of printing money, complying with current Basel requirements standards to mention a few.
From all the approach’s, adopting US dollar or rand is ideal. I also endorse each of them for the betterment of our economy but however since these approaches seem to have failed before, on my own perspective I think some domestic fundamental principles that must be addressed first before history repeat itself.
Adoption of US dollar and Rand will tend to stabilise inflationary tendencies, raw materials likely to become cheaper and affordable, boost investors’ confidence thereby definitely attracting FDIs.
The reason for adopting a multi-currency regime and introduction of bond notes was to easy liquidity crisis in the economy. Were these approaches met expectations? If they met for the short-term, then how are we going to address the roots of failure? Are we going to address them or what we want is just to Adopt foreign currency?
It is important to pin point few factors that are feared to lead again to the failure of foreign currency adoption as explained below.
Primarily from 2009-2012 our economy was on a rebound, our regulators maintained a pivotal fiduciary role which is why we managed to effectively sustain a dollarised economy. From 2013 we got it wrong when RBZ started printing money through treasury bills(TBs), without reserves backing TBs, then comes introduction of bond notes, collapse of industry.
Undoubtedly, high dependency on imports than local products accompanied by high exports resulted in high volumes of US dollars siphoned to SA economy. Yet Zimbabwe didn’t manage to attract USD back cause of very few exports due to underutilisation of resources resulted to shortage of liquidity in circulation and cash shortage baby was born.
I strongly believe the adoption of bond notes with the theoretical assumption that 1 bond note is at par with 1 USD, was just a nightmare. Gresham’s law says ‘’ bad money drives away good money. Bond notes drove away US dollars from circulation. People tended to withhold their US dollar deposits funds because they felt duped, where their US dollars bank balances were simply assumed to be equivalent to bond notes, without any negotiation. Printing of bond notes in excess without adequate foreign currency to back them worsened the cash crisis. The motion brought about ubiquitous budding tendency of keeping funds under mattresses by the public reason being that practically in a currency exchange market US dollars and bond notes were not equivalent leading to creation of informal money changers markets.
There is no doubt that US dollars were externalised and disappeared.
The international market has lost confidence in Zimbabwe to such an extent that most of the international surplus units have curtailed their financial assistance towards Zimbabwe, no longer feel motivated to fund Zimbabwe, because of several reasons which include; continuous failure to pay our high debts after they have been written off several times, lack of central bank independence from political parties.
To make a long story short, I have a reason to believe that history can repeat itself. The use of domestic and foreign currency in an unindustrialised country proven itself as a total failure solution. The alternative option is to leverage technological payments with single currency whether USD dollar, Rand, or Zim dollar. Whichever currency to be adopted, for it to be successful it demands a functional industry to deal with capital flight, assuming RBZ is complying with the Basel standards. Otherwise we will go in circles with our efforts in vain.