The announcement on the February Monterary policy statement by Reserve Bank Governor John Mangudya has ushered in a series of potential and realized price adjustments from different businesses in different sectors. A rose by any other name is still a rose and so it is with price increases. Cited amongst the reasons for price increases is the need to adjust to the new reality to align the prices given the new floating currency.

History of Zim and USD

To understand the crisis we have to look back a little over 20 years ago. The late 90s and the beginning of the fall of the Zimbabwean dollar which would later turn into a complete crash. The currency depreciation was rapid and those who had access to foreign currency then preferred it. Zimbabwe also has an economic history that lends itself to a preference for foreign currency with an economy that has been underpinned by mining, agriculture and tourism; all foreign currency earners. And for those operating in these sectors, the preference for working in foreign currency terms is steeped in history. It is in fact nothing new.

February 2019 Monetary Policy Statement

The MPS moved Zimbabwe back to accounting in a local unit, albeit the much-maligned bond note and friends being rebranded the RTGS dollar. What this means in simple language is that people and businesses alike were meant to note all prices and values in RTGS dollars and only look at a US dollar value through the foreign currency exchange rate in the interbank market.

Money has 4 vital functions; medium of exchange, standard of deferred payment, unit of account and store of value. For the purposes of this discussion let’s focus on the latter two functions. A unit of account simply means measurement method. This is what the team at the Reserve Bank want the RTGS dollar to be. When you see a good how do you know how much it’s worth? How do you measure if it’s a good deal?

The other function of money we should look at is as a store value. You’ve worked or sold goods today and are given money today. Ideally, that value should hold (at the least relatively) through time. So I can exchange my goods today and the value is kept in the money and I can use that 6 months down the line. This is another function the RTGS dollar has failed at.

Real Value Accounting

Real value accounting is a process through which, in times of monetary uncertainty, citizens use a unit that is more stable as a unit of account. Gold is an obvious example of real value unit. The idea is simple because the currency in use does not reliably measure or store value, people use something else. For Zimbabwe, this is the US dollar. Firstly owing to our history of export industries dominating the economy. Secondly, through the multicurrency era, the US dollar was our unit of account and that lasted exactly 10 years. Finally, the US dollar is a global trade standard – all businesses speak American.

Price increases and adjustments based on the rate

A common thread in the price increases we’ve seen is the insistence that prices have not changed, in US dollar terms. They go as far as to call to it an adjustment. If we are to take the February MPS seriously then the RTGS dollar is our unit of account. The talk of US dollar terms need not enter the discussion. However, we live in reality and reality says we may speak in RTGS dollars but we are all thinking and calculating in US dollars. I’ve often seen people ask what imported component goes into local produce for it to experience price increases based on the exchange rate. The reality is the desire to maintain value is what keeps the US dollar our real value unit.

Is there a way out?

Many malign the price increases as examples of businesses being greedy. On the contrary, it is just good business. I must tread carefully here as I am not advocating for price increases on the average Zimbabwean but rather for fair value practices. That includes pegging of salaries in US dollars as well, to keep it fair.

Unless and until our currency stabilizes we cannot fairly expect business or anyone for that matter to take it seriously. Lest we forget the suffering that Zimbabwean currency in its various forms has brought on people. The Zimbabwean dollar, the bearer Cheque and the Bond note all brought suffering to Zimbabweans and now we have the RTGS dollar. It hasn’t had the best of starts.