Among the many potentially disastrous resolutions passed at the Zanu PF annual conference two weeks ago in Gweru, was one that Zimbabwe should forthwith re-introduce its own currency to function alongside the prevailing multi-currency regime.
Opinion by Eric Bloch
The enunciated rationale to the passing of that resolution is that this would counter pronounced illiquidity severely afflicts the economy.
The illiquidity also has negative repercussions on the operations of the retail sector, exacerbated by a gross inadequacy of coinage in circulation, thereby constraining traders from giving change due to customers when making purchases.
Undoubtedly, in deliberating upon and passing that resolution the conference delegates had economic needs in mind, but the foremost motivation was irrefutably to woo and enhance voter support for the party in the presidential and parliamentary elections expected in 2013.
So pronounced is the craving for votes that conference participants gave no consideration whatsoever to the possible negative consequences of their proposals, which would be of such magnitude as to outweigh the anticipated benefits.
The harsh reality is that an overly-precipitous re-introduction of the Zimbabwean currency would have adverse economic repercussions which would markedly exceed any benefits.
First, implementing the proposal would have a deleterious impact on the banking sector, which would in turn rebound upon the economy as a whole.
Inevitably, based on past experiences between 2004 and 2009 (prior to the introduction of the multi-currency regime), businesses and individuals will have immense fears that if they deposit in the banks any of the foreign currencies which constitute the current multi-currency system, withdrawals thereafter will only be possible in the Zimbabwean currency, with the foreign currencies deposited being expropriated by the Reserve Bank of Zimbabwe or by government.
Those fears will be provoked by the magnitude of such currency expropriations from exporters, non-governmental organisations, and other depositors of foreign currencies during the pre-multi-currency era.
Because of such fears, most will refrain from using banking services, and instead will secretively hold foreign currencies in their wardrobes, under their mattresses or in their business safes. This will exacerbate the considerable inability of Zimbabwe’s financial sector to provide the essential overdraft and loan facilities critically needed by almost all private sector entities in the economy.
Concurrently, the re-introduction of a Zimbabwean currency prematurely will shatter the already low levels of investor confidence especially so as the RBZ does not have any meaningful realisable reserves to support the currency and assure retention of currency value.
While negatively impacting on the already exceptionally low levels of confidence of all potential investors, that will be especially so for those outside Zimbabwe.
The economic morass which has haunted Zimbabwe since 1997, occasioned by the land expropriations in total disregard of property and human rights, pronounced political and economic instability, counter-productive and unjust indigenisation and economic empowerment legislation, racist diatribes of political leaders and the recurrent rantings about the alleged “illegal” international sanctions, have all eroded investor confidence.
As if that erosion did not suffice, now Zanu PF wishes to worsen it further by re-introduction of a Zimbabwe currency.
Another inherent risk in Zimbabwe re-instating its currency is that the continuously bankrupt government will be motivated to print excessive quantities of the currency, as it did prior to the 2009 demonetisation of the currency. Undoubtedly, as in 2008, doing so will fuel world-record breaking hyperinflation. That, in turn, will intensify the great poverty that prevails nationwide, triggering even greater hardships.
It will also result in further collapses of manufacturing and other enterprises, and will again emaciate the financial sector. Such hyperinflation will be a further deterrent to much-needed foreign direct investment.
Another disastrous result of a premature re-introduction of the Zimbabwean currency will be the undoubted re-activation of informal sector currency trading. Illegal trafficking in currency was a major stimulant of hyperinflation and externalisation of foreign currencies. The illegal currency market was one of the major causes of the collapse of that which had, at one time, been a very virile economy.
Ancillary to the informal money trading operations, once again Zimbabwe will undoubtedly be the victim of transfer pricing and other unlawful tactics of externalisation of funds. The result of that action until 2009 was not only another hyperinflation catalyst, but it also worsened the national balance of trade, with currency inflows falling far short of outflows.
This resulted in crippling insolvency, withdrawal of international lines of credit, and massive reluctance of foreign suppliers to accord credit to their Zimbabwean customers.
All of these negatives were cavalierly disregarded by the proponents of the resolution at the Zanu PF conference, who with their habitual failure to consider any of the consequences of their proposals (save for expectations that such proposals will increase voter support for them), recurrently have total myopia as to such adverse consequences.
Experience has been defined as making a different mistake next time and, if that is so, then clearly the proponents of the tsunami-like resolution that Zimbabwe immediately reinstate its own currency are grossly inexperienced.
One cannot suggest that they “think again” because, very evidently, they have failed to “think before”.