Finance Minister Mthuli Ncube stirred a hornet’s nest when he said that Zimbabwe will have new currency within 12 months. Again. The minister was answering questions on Bloomberg about the economic and policy direction for Zimbabwe. Those of you who believe this is a case of De Ja Vu are quite right to think so, we’ve heard these very same words before. While we believed that the RTGS dollar was the currency he spoke of in January we may have been misguided.
The minister was asked many questions, one pertinent one was on the depreciation of the RTGS dollar value and if it will come to an end. He responded by saying that money supply growth was the reason for depreciation and inflation in the past but those activities have stopped therefore the rate will have to stop somewhere.
Reserve Bank to Resume Lender of Last Resort Facility
The minister also announced that the Reserve Bank of Zimbabwe was to resume its role of being the lender of last resort. The lender of last resort is a function carried out by a central bank or other institution that offers banks (and nations) loans to meet their liquidity positions. Banks tend to have complicated balance sheets, loaning out money long term while needing to still meet obligations for withdrawals and transfers.
A lender of last resort helps banks to keep viable. In saying the Minister pointed out that the interest rate would go up as a result as they would be looking for a reference rate that matches US federal reserve rate; Americas lender of last resort. The low-interest rates affect the bank’s ability to lure deposits for on lending as. With an inflation rate currently at 59.3%, higher interest rates for deposits are required to make sense to depositors.
More questions than Answers
The minister’s remarks left Zimbabweans bemused at best. The question begs why he would make such announcements abroad on foreign channels without communicating the message to the stakeholder; the Zimbabwean citizen. The man has time to write a weekly column praising government economic policy while playing down or outright ignoring the plight people face in this economy. Zimbabweans are still coming to terms with the effects of the introduction of the RTGS dollar. As it has failed to address any of the problems that it was supposedly introduced as a solution to.
Another question that came up frequently was why we need another new currency again when have managed the one we have so poorly. The bond note at its inception traded at parity with the US dollar but at its theoretical death traded at 4.15 on the parallel market. The RTGS dollar has taken over the mantle and in the same parallel market now trades at 4.6 to the US dollar in spite of the presence of an interbank market. Many have said there are economic fundamentals that need to be addressed before we can usher in a stable currency.