By Hon Madzivanyika
Whereas ,Section 317 of the constitution of Zimbabwe requires the RBZ to regulate the monetary system to promote currency stability and overall macroeconomic stability,there is need to analyse the impact of the recently promulgated monetary policy statement on the new currency as introduced.
The new monetary policy statement was introduced under the theme,”Recalibrating the monetary policy framework to anchor Currency to achieve Exchange rate and
Price stability.”
As the Democratic Alternative in Zimbabwe,we believe the new Currency will not succeed because of thr following factors:
1.Disputed Political Leadership
Exchange rate volatility and inflation are just but a symptom of Poor Governance.It is important to understand that the financial markets and all economic variables are highly responsive to developments in Politics.The continued disputed elections continue to creat disbelief and a negative perception that bring in adverse expectations about the economy.Those who rig elections unfortunately cannot rig the economy too.In most countries economic stability is not only the preserve of Central banks and monetary authorities,but a collective responsibilty with political leadership having a greater part to play than Technocrats and professionals.
2.Crises of Confidence
Confidence refers to the trust and belief which the business community and citizens have torwads the government and is a result of past expiriences.Confidence is built from consistent demonstration of robust economic policies,governance,integrity,transparency and accountability.The inherent fear that episodes of yester years might repeat themselves is what causes the crises of confidence.Let me put this point into perspective.Between the period 2003-2008 Zimbabwe expirience hyperinflation and currencies of varied denominations and form were introduced such as the Special agro cheques,Travellers cheques , Bearer cheques and a 100 trillion dollar bank note.Many people lost value of their money ,pensioners who worked from the 1960s went home with virtually nothing and business people lost their capital.
As if that was enough, in 2016,The governnment introduced Bond notes saying they were backed by foreign currency to the tune of USD 200 millon from Afre-xim Bank saying its intended to support and encourage exporters.The Bond note was to run along with the basket of 8 currencies.The truth of our expirience is that the Bond note failed.There is no difference between the bond note and The Zimbabwe Gold(ZiG) because both currencies were backed by foreign currency.So there is no guarantee that the Zimbabwe Gold will succeed,it will fail.
On 20 Feb 2019,the government through a Monetary policy statement announced that Bondnotes(notes and coins) ,Ecocash balances and one money balances were now called the RTGS dollar,an official currency that worked alongside a basket of 8 foreign currencies.4 months down the line,on the 24th of June 2019,the RBZ banned the use of the basket of foreign currencies and paved way for the RTGS dollar to work as a mono currency.What a complete Sommersault??Imagine the implication on Business planning,Pricing of contracts and forecasting?Regardless of such an unpopular decree,the people of zimbabwe resisted the unpopular law and continued to trade using the US dollar along with other foreign currencies.Again most people lost value because the RTGS dollar was then pegged at 1:1 with the USD for the purpose of recalibrating contracts ,prices and loans.This is a blatant demonstration that money can only be money if it is generally accepted by the citizens.The citizens rebelled against the its goverment because they were fedup with Monetary policy inconsistency.
On 29 March 2020,the goverment ,feeling the pressure and power of people resistence to their June 2019 monetary policy,reverted back to the use of a basket of foreign currencies to work with the RTGS dollar which was then changed name on the same date to Zimbabwean Dollar(ZWL).
Three years down the Line,Boom..another currency called the Zimbabwe dollar (ZiG) is launched.it is imperative to state that ,we have been in this vicious cycle of currency introduction,reinvention and recycle without any meaningful change. This fundamental aspect of confidence has not been addressed and as such,the new currency is bound to fail.
3.Insatiable Appetite to Print Money
The government of Zimbabwe as led by Emmerson Dambudzo Mnangagwa has been carrying out capital projects such as road construction and other infrastructure using printed money.The RBZ itself was crediting the accounts of those Contractors using balances that did not come from the Consolidated Revenue Fund but instead created money balances there by illegally doing the work of the Ministry of Finance in what is called Quasi Fiscal operations.No wonder why the Ministry of Finance is finding it difficult to seek condonation of the unauthorised expenditures which are now sitting on the RBZ books.
The creation of such new balances to pay contractors,led to persistent money supply growth which ultimately pushed prices up leading to Inflation and widening exchange rates.As we speak,many projects are lined up and the government doesnt have access to Long term financing to support them due to the huge debt burden.As a result,the only way to finance these projects is via seinorage.This indiscipline of printing money that exceeds the Reserves that back a currency will ultimately,we are going back to the era of high inflation and exchange rate volatility and the currency will fail.We cannot trust the RBZ governer only for his word that they are not going to print because history has taught us otherwise.
4. Demand Limitations for the ZiG
The RBZ only stimulated the demand for the Zimbabwe dollar thorough only 50% of Quarterly payment Dates income tax payments payable in ZiG.It is common cause that Income tax is the 3rd highest earner of Tax revenue with around 15% contribution.As such ,50% of such will be around 7.5% of our Total Revenue is payable in ZiG.This is an outright admission by RBZ that it doesnt trust its own currency by ring fencing VAT and PAYE which are the biggest contributors to revenue to continue remitting in USD.The governor must also taste his own medicine before handing over to Zimbabweans.I expect them to ensure that all vital services such as Central registry fees(Passports,birth certifucates etc),Electricity ,fuel ,vehicle licensing,Toll fees and all statutory fines are exclusively payable in ZiG.This could have generated demand for the Zimbabwe Gold currency.Its clear that the RBZ governer and government do not trust their own currency as they themselves continue to prefer the USD.
5.Awareness Deficiency
Policy pronouncements of this nature requires extensive awareness campaigns and consultations.This could have resulted in people to become part and parcel of the new pronouncements.Imagine an old man from Dotito going to the shops to buy bread using the ZWL only to be told it was phased out.Zimbabweans were ambushed and caught off guard with the new policy pronouncement.This creats compartments of disbelief and fear of loss but when people are extensively consulted and informed,they can embrace the new without hesitation or doubt.In light of this ,the New currency will not see the light of the day.
6.Policy incompatibilty
The backing of the Zimbabwe dollar by the US dollar when the Usd is working along the the ZiG is an admission that the USD is a powerful currency and will be preferred at all material times as a store of value.This then means that people of Zimbabwe will always prefer the US dollar nomatter the circumstances and as such the USD will eventually drive out the ZiG.The Zimbabwe dollar can only be backed by foreign currency and succeed if it works as a mono currency.The demand and commoditisation of the USD will continue and the Zig will fail.
7.Production and Supply side bottlenecks
The success of a currency largely depends on the productive capacity utisation of a country.As it stands our country reels from serious under capacity utilisation as most industries remain closed,Agriculture is at its worst low due to drought caused by El Nino and infrastructure gaps that negates production.A country ‘s currency strength(exchange rate) as compared to other currencies depends largely on the competitiveness of its products on the international market.We must produce so much and in such a way that we generate more exports compared to our counterparts.As it stands ,for every 1$ worth of Exports receipts is compensated by $4 worth of imports.This means that the fundamentals are weak to sustain a new currency.
NB :All these raised issues are largely connected and sumed up to Lack of political will by the Government.Defacto leaders do not care about its people,they actually hate them for not voting them into power and as such they lead the country without the necessary legitimacy capital ,advancing selfish interests and personal aggrandizement!!!
Recommendations
In light of the impending failure of the Zimbabwe dollar,l suggest the following:
1.Full Dollarisation of the Economy
The RBZ in its Monetary policy pronouncement,admitted that 80% of Zimbabwe’ s transactions are now in USD.This literrally means that the country has fully dollarised and the USD is the currency of choice .This will eliminate the Exchange rate volatility and hyper inflation at least in the short to medium term .
2.Genuine Re engagement with International financial institutions over Debt
The country cannot continue reliance on printing money to fund capital projects which under normal circumstances require long term financing.We are not getting long term financing at the moment because of our failure to repay and service our huge debt which is currently sitting on 17 Billon USD.In light of this, a robust reengagement process is necessary to unlock long term financing for real development of infrastructure that aids production.
3.Restoration of Legitimacy
The Authority to govern is derived from the people through democratic elections.Everything else fall in its place if this fundamental issue is properly executed.No economy will flourish when the political leadership ‘s ascendancy to power is disputed.it is only when political leaders find each other and put Zimbabwe first,have a collective vision and restore Legimacy for the development of a country.Empirical evidence proves that,since 2000,disputed elections have hounded us in the form of economic challenges.We only got a reprieve between year 2009 to 2013 where a shared vision was ushered in via the Global political Agreement. From 2016, the demon came back untill today we are reeling from a crisis of misaligned politics.
Hon Corban Madzivanyika(Mbizo MP)
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