Many have noted how Zimbabwe seems stuck in some mary go-round. We are repeating history under new names more suited to modern times. That corner was gifted more ammunition yesterday as Finance Minister Professor Mthuli Ncube released Measures to Establish the Exchange Rate and Macro Economy.

While the document tries to paint a rosy picture of the economy, it has not escaped the attention of anyone that the Zimbabwean dollar is doing worse than ever. The government abandoned reporting inflation in the domestic unit, and its valuation has suffered markedly on both the official and parallel markets.

The Finance Minister was forced to institute measures a year ago for similar reasons. Ultimately the measures did not work, and measures had to come down from the highest office. However, even those measures enjoyed what can best be described as a temporary success.  Let’s look at the highlights of the latest round of measures to understand what they mean for us.

100% retention on domestic foreign currency

All domestic foreign currency transaction receipts will be kept by businesses with no need to convert any portion to ZWL. The goal here is to channel; more foreign currency into the formal banking system.

Adoption of all external (Government) Loans by Treasury

A contentious issue has been the quasi-fiscal activities of the Reserve Bank of Zimbabwe. In simple, the RBZ has been doing the job of the Ministry of Finance; one such example is borrowing on the government’s behalf. This becomes tricky when the authority that creates money acquires debt. Now all government borrowing has been transferred from the RBZ to the MoF.

Enhanced auction system

The Minister also included plans to enhance the foreign currency auction system by migrating to a pre-announced envelope system.

In a Dutch auction, a pre-announced envelope system is a mechanism to ensure fairness and transparency in the bidding process. In a Dutch auction, the bidding starts at a high price and gradually decreases until a bidder accepts the current price. However, in a pre-announced envelope system, participants submit their bids in sealed envelopes before the auction begins.

However, this sounds like what we had been led to believe was happening at the auction system. Which begs a few uncomfortable questions. What have you been doing all along? If the pre-announced envelope is a more transparent system, why only implement it now?

Lifting all restrictions on basic goods

All basic goods will no longer be subject to import restrictions. According to the document, they will be imported free of import duties and taxes, but history has taught us we will receive further qualifying information with the official documents.

Supportive interest Environment

An interesting proposal in the area of interest rates. The minister proposes punitive short-term interest rates to discourage speculative borrowing with lower long-term interest rates. This sounds good in theory but presents two problems in practice. Firstly, a lender will prefer offering short-term loans and coupled with uncertainty and volatility in the Zimbabwean market; it may effectively wipe out long-term credit. Secondly, this will reverberate through the economy and affect the pricing of everything. That said, having interest rates that at least compete with inflation is important for the economy.

Use of Domestic currency by Government agencies

The minister also proposed the use of domestic currency by government agencies. This is a complicated one to get around. There is a lesson from history that once nations dollarise, they do not go back. Zimbabwe is proof of this with US dollar pricing converted to domestic currency, even in government institutions. This will create a demand for the local unit, but there are workarounds here which create arbitrage opportunities of the past.

Gold coins and tokens

Finally, the minister committed to fully backing the Gold Backed Digital Tokens with physical gold at all times. This is good news but lacks the accompanying detail to give it any force. The fear of empty promises of the past.

Once again, we have been given a raft of measures with little detail. The detail will make sense of these policies and their real impact. We should also prepare for adjustments to these announcements as the legal instruments become available.