The Zimbabwean economy has been rocked by serious instability, which has become pronounced in the past 2 years. This is something that is in stark contrast to the time proceeding from around 2009 where there was a general state of economic stability. The current state of our economy is a culmination of many factors over time. It is common knowledge that a country without its own local currency can’t realize its utmost economic potential. That’s why for a while now there has been a widespread debate on whether or not, or rather when we should return our own Zimbabwean dollar. The short of it is that you don’t just return a local currency without addressing some fundamental precursors.
This time stamp conjures up so many dreadful memories for most Zimbabweans. The country was riddled with a long list of challenges, one of which was hyperinflation. Every conceivable basis for the ultimate demise of our local currency was now in motion. The resultant remedy was to completely abandon the Zimbabwean dollar altogether.
2009 And Beyond
This year brought onto the scene something akin to a miracle as things somewhat shifted for the better in a short space of time. This was all thanks to the introduction of the multi-currency regime. There was a general restoration of goods availability and buying power as consumers could now transact using multiple currencies with the USD being the dominant one and the unit of account. This effectively ended hyperinflation and life sort of got back to normal again.
Here we are today, the multicurrency regime is still in place, yet hyperinflation looms once again. The multicurrency system was seriously compromised as certain pertinent conditions were violated. Right now we have a scenario where there are widespread forex shortages. This ideally increases the demand for it thus spiking the cost of acquiring it. We have a nation that has a serious imbalance between exports and imports (imports far outweighing exports). Then, of course, there is the bond which recently morphed into RTGS$ – which has been the instrumental factor in pushing price increases. So essentially we have goods and service providers incurring huge costs and hassles to acquire forex. The RTGS$ is being rated against the USD or the Rand, with the RTGS$ continuously weakening. Thus, prices are going up due to the increased costs businesses now incur to continue operating sustainably.
Zimbabwean Dollar To Return By April 2020
In April the Finance Minister indicated that the local currency would be returning within a year. In principle, it’s necessary to bring it back because the multicurrency system no longer manages to curtail hyperinflation. However, the real crux of the matter is, are the conditions necessary for its return in place? There are things that must be addressed prior to its return otherwise we would just be setting ourselves up for a reincarnation of the 2008 era.
What’s The IMF Saying About All This?
The IMF Rep for Zimbabwe concurs with the notion that this nation does need its own currency – this is a broadly shared view. He also maintains that the reintroduction of the Zimbabwean dollar is a decision that remains the sole preserve of Zimbabwe. There are two issues of importance that he raised as precursors for effectively reintroducing the local currency:
Independence Of The RBZ
There is a need for the RBZ to have a marked level of independence and enhancement of its governance and control mechanisms. This has a huge impact on establishing confidence that’ll be much needed for the return of our local currency. As it stands the RBZ isn’t autonomous as evidenced by politically-induced appointments of top management. This is also seen in its apparent inclination to channel huge unjustified amounts of money (particularly forex) to the government. Thus, the central bank’s operating framework for the drafting of sound monetary policies is flawed owing to its lack of autonomy and independence.
Checked Government Expenditure
This obviously has been an outcry across the general populace since so much government misconduct with regards to expenditure has been prevalent. By the end of August last year, almost US$8 billion has been extended to the government through Treasury Bills. The most disturbing aspect of these TBs is that they were issued through private processes as opposed to public auctions. These private processes negate the fundamental aspects of sound pricing which are ensured when it comes to public auctions. By the same August last year, the government had a central bank overdraft of over US$2 billion dollars. All this indicates serious indiscipline when it comes to government expenditure.
Around the time this nation attained independence we had our own currency which was quite firm. I’ve alluded to some of the factors that led to its gradual demise over the years. In short, it was the total disregard of certain precursors that are central to a sustainable and firm local currency. As we gravitate towards the possible return of our local currency it’s only right that those precursors, some of which the IMF has highlighted, be adhered to first.