The multiple currency system was never meant to be a permanent currency solution in Zimbabwe. It was introduced to deal with the hyperinflation scourge as well as to reverse the economic decay that had reached unprecedented levels.
Commendably, this currency regime managed to achieve these imperatives by instilling some measure of fiscal discipline as well as restoring confidence in the economy.
The average growth rate of 10 percent or more achieved between 2009 and 2012 is largely attributable to dollarisation, which, of course, coincided with the Government of National Unit (GNU).
Now there seems to be consensus that dollarisation cannot take the economy beyond stability simply because of the absence of independent monetary policy under this regime.
However, it appears policy makers are skeptical about early abandonment of the multiple currency regime as fundamentals are deemed not yet in place.
Admittedly, Zimbabwe’s economic fundamentals have been deteriorating since 2012, with the re-emergence of irrational government expenditure largely blamed for currency instability.
While the new thrust to open the country for business and attract investment would assist in reversing this adverse economic trend, it could be hampered by the existence of a complicated currency regime and its instability.
This is why it is important to revisit the currency issue with a view to coming up with a common currency regime backed by commitments to the time frame to its introduction, which will effectively compel the country to work hard towards achieving the required fundamentals.
In its 2017 Monetary Policy Statement (MPS), Reserve Bank of Zimbabwe acknowledged the need for Zimbabwe to de-dollarise but indicated that the following fundamentals should be in place first; sustainable forex reserves equivalent to one-year import cover, average industrial capacity utilisation of above 75 percent, sustainable government budget, health job market and demonstrable consumer and business confidence.
Now, in the recently announced 2018 MPS, the RBZ revised the import cover to three months, ostensibly to reconcile with its parent ministry’s position.
Understandably, these conditions are safeguards to ensure that the economy doesn’t slip into hyperinflation again through the premature introduction of a new currency. Importantly this currency may suffer from a confidence crisis, which will condemn it to instant failure.
However, just talking about the fundamentals without time frames is like a talk show. We need commitment and this is what will compel us as an economy to be more innovative and work hard towards achieving the required fundamentals.
This will also give assurances to investors, who are always concerned about our currency situation, that we are serious about addressing the issue.
In my view it is possible to introduce a new currency within the next three (3) years and there should be a credible plan towards achieving this.
RBZ has already indicated that the new currency will be predicated on the Currency Board (CB) or Gold Standard (GS), which is commendable in view of the commodity dependent nature of our economy.
Being a country that is richly endowed with natural resources it’s easy to forward sell our commodities and raise say $20 billion or so to support and stabilise the new currency.
However, forward selling of commodities would be difficult in view of the suboptimal financing and marketing arrangements of our commodities mainly gold and tobacco. This is why it is important to agree on the time frames for the introduction of our own currency as it compels policy makers to address these and other issues that are hindering the country from achieving maximum value from its commodities.
Issues such as the sale of gold through a middleman or marketing agent, Rand Refinery (SA), and the sale of the bulk of our tobacco to China through middlemen doesn’t sit well with concerning citizens.
Zimbabwe has been selling its bullion through Rand Refinery after being booted out of the London Bullion Market Association (LBMA) following the fall in gold production below the minimum required 10 tonnes per year in 2007.
However, the pace to get the country readmitted into LBMA is not encouraging noting that we have been producing more than the minimum required for a number of consecutive years, with production of 21,1 tonnes and 24,8 tonnes achieved in 2016 and 2017 respectively. We sell more than 60 percent of our tobacco to China through middlemen at a time when the latter has shown commitment to deal directly with Africa through the One Belt one Road initiative which was allocated multiple billions of dollars to support trade between China and the rest of the world.
This comes as China is trying to unwind its exposure of around $4 trillion to the US. China is also in dire need to promote the usage of its currency after it was admitted to the IMF Special Drawing rights in October 2016.
Clearly only commitment to the introduction of own currency will compel policy makers to think outside the box and take advantage of opportunities that the world is presenting to us but we don’t seem to see them because of lack of some compelling forces.
For those who don’t believe in the need to de-dollarise, my message to you is that it is actually unravelling before our eyes. The mere existence of cash premium, which are deepening by the day is a clearest sign of de-dollarisation. So it’s better to be proactive and come up with a wholesome solution to the cash challenges.
Persistence Gwanyanya is the founder and Futurist of Percycon Global Fund Managers (SA). The company specializes in sovereign funding structures for Central Banks and Governments. He is also the founder of Bullion Leaf Zimbabwe, which is a recently licenced Class “A” tobacco buyer. For feedback email [email protected] or whatsApp +263 773 030 691.