A little over 1 year since the then Bond was declared as being different from the US dollar after walking 2 years down the road of a parity fallacy. Few would’ve seen a fully-fledged Zimbabwean dollar is the result of this as at the very beginning of his tenure Mthuli Ncube spoke vehemently about the need to get rid of the Bond note. Prices have since then climbed anywhere between 400 and 600%, one United States dollar now buys over 23 Zimbabwean dollars and the economy is set for another year of contraction, as much as 7% by some analysts. Calls have emerged for the nation to join the Rand Monetary Union to put a stop to the chaotic descent.
In a story carried by Newsday, a United States-based stock brokerage Morgan and Co has urged the Zimbabwean to dump the disastrous attempt to reintroduce the Zimbabwean dollar and instead join the Rand monetary union. The Rand Monetary Union is a group of countries including Eswatini, Lesotho and Namibia which use the South African Rand alongside their local currency. The advantages would be many for Zimbabwe. Recalling the 2000s era hyperinflation and how the adoption of the multi-currency system brought a screeching halt to record inflation figures.
Many arguments can be made for the Rand to be adopted as a unit of account and official currency as it presents an opportunity for regional price comparison while satisfying those of the school of thought that pricing in a weaker currency attracts greater demand for exports. Given that South Africa is Zimbabwe’s largest trading partner in both directions the Rand would only make more sense as the currency to adopt.
However, joining the Rand monetary union is no walk in the park. The South African Reserve bank requires the equivalent of a nation’s own outstanding money supply to be deposited with the reserve bank in foreign currency. Zimbabwe is in the situation it is in part because the Reserve Bank of Zimbabwe has no foreign currency reserves so that may be an order too tall. In addition to that giving up the reigns on monetary policy, which has been used heavily by the government in various ways may also be too much to bear. Doing so would also require the government to concede that its Bond note come Zimbabwean dollar experiment has failed and that would be naive to expect.
Zimbabwe never officially adopted the US dollar but rather simply brought the currency among others which included the Rand into legal tender status. Some have argued that the same approach as was used in 2009 but with the Rand as the unit of account would bring the same effect. Something that consumers and the general economy would appreciate sooner rather than later would.be bringing some.sort of sanity to the situation.
Economist Kipson Gundani was quoted by Newsday as saying much more would need to be done though. Seeing the adoption or introduction of the Rand as an opportunity to carry out the necessary reforms to stabilise the economy rather than as the endpoint in the journey to recovery. Lest we forget the Bond note came about as the result of a change of currency that was not met with a commensurate change in policy direction.