In a story that has become the talk of the town, President Mnangagwa “announced” the plans for a new currency in Zimbabwe this year. He further intimated that that would be the end of the multi-currency era as only the new currency would legal tender. This development saw the nation go into overdrive discussing the rationale, need and problems behind this talk of a new currency.
Many have come through to reiterate Mnangagwa’s position that nations cannot prosper without their own currency as foreign currencies left the government with little power. In fact, this position was first pushed by Finance Minister Mthuli Ncube who said that country was stripped of its monetary policy ability by former Finance Minister Tendai Biti during the dollarisation or multi-currency era. Both these positions ignore two important fundamentals.
Firstly competitiveness is more than a matter of price. The units you use to measure your output have little to do with how competitive you are. Writer and commentator Alex Magaisa put it best when he said on Twitter:
If a metric scale says you weigh 100 Kilograms swapping it for an imperial scale is not going to change your weight. The scale is not the challenge. It only records what it’s given. As the young ones say, if you know, you know.
The second fundamental issue ignored by the current Finance Minister is that Zimbabwe’s monetary policy was rendered irrelevant by the Reserve Bank itself through then Governor Gideon Gono and teams lack independence from government. In the years 2007 to 2009, the reserve bank of Zimbabwe had taken over the duty of most ministries and was printing money to finance government expenditure ineffective policies.
The real problem
The majority while accepting the benefits of our own currency has accepted that under current circumstances a new currency would follow the fate of the 4 and soon to be 5 who have gone before it. Namely the Zimbabwe dollar, the bearer Cheque, the Agro cheque, the bond note and the current RTGS dollar.
While the finance minister is happy to report surpluses in government coffers we must look at the true nature of our problem. A look into government expenditure tells us everything we need to know. From a total expenditure of ZWL$1.5 billion in the period, ZWL$1.015 billion (68%) has been spent on salaries, ZWL$185.6 million (12%) on operations & maintenance, ZWL$93.3 million (6%) on interest payments and ZWL$174 (12%) on capital expenditure (investment). After seeing those figures you don’t need to be a genius to surmise that this spending pattern leads to a country with poor infrastructure, high consumption and low investments. Contrast with a nation like Rwanda which owes a large majority of its early investment to its government. Meanwhile, we will go everywhere looking for investment.
That lack of investment leads to dilapidated and unreliable infrastructure which among other factors makes us uncompetitive. Our exports cannot compete because businesses do not operate smoothly. This results in our reliance on exports and needs for foreign currency. There are monetary issues too as our government has a penchant for spending beyond its means accumulating domestic debt near ZWL$10 billion (at the time it was accumulated YS$10 billion).
We do love news
Our government, with no one epitomizing this more than the president does have a tendency to say things for audiences. Of course, Zimbabwe is open for business and we have been reminded at every opportunity. While these words are said to inspire confidence they do the exact opposite and perhaps the only people believing these words are the ones peddling them.
We are just not ready
We are simply put not ready for a new currency. A domestic currency as sole legal tender would work under the right conditions. It is getting to those conditions that people are not optimistic about. While the State media point to a Twitter poll as having endorsed The Mnangagwa administration’s policies, a poll of economic indicators casts a very different opinion.