Eric Bloch Column

Eliminating the zeroes

By Eric Bloch

OVER the last five years inflation has soared upwards almost continuously, the only exception being in the latter part of 2004. It reached an all-tine high of 1 193,5% in May 2006, be

fore allegedly falling to a miniscule extent in June 2006 — but that fall must be viewed circumspectly considering the absence of any adjustment to the Consumer Price Index for increases in school fees since February, in domestic workers’ wages since September 2005 and in diverse other prices and charges.

As inflation has surged higher and higher, it has impacted with intensifying effect upon the practicalities of Zimbabwe’s currency. Coins and low-denomination bank notes became of no effective value and totally meaningless as an exchange medium.

The costs of production of those coins and notes vastly exceeded the nominal value, and usage of such denominations for commercial transactions is impractical in the extreme. Continuing use would have necessitated the replacement of wallets and purses with wheelbarrows or even bigger containers. Bank tellers would be unable to cope with volumes or weights of deposits and withdrawals, and retailers would have had to replace cash registers with vault-sized cash boxes.

The central bank first addressed the problem with the issue of $500 and, thereafter, $1 000 banknotes and, as the problem endured and grew exponentially, with the issue of bearer cheques, first having values of $5 000 and $10 000, then $20 000, subsequently $50 000, and recently $100 000.

Even that has not sufficed to address the handling problems (and the concomitant exacerbation of security problems), for just the purchase of a small trolley of groceries can require a “brick” of 250 or more $100 000 notes, if one is fortunate enough to obtain such notes, or two “bricks” aggregating to 500 notes if only $50 000 notes are available.

Businessmen have to carry briefcases full of currency to meet business travel expenses such as taxi fares, porters’ gratuities, restaurant entertaining of clients and the like. If not resolved in some other way, Zimbabwe now desperately needs a $500 000 bank note, and could well need a million-dollar note in the not-too-distant future.

However, that is not the only problem. Most of Zimbabwe’s computer programmes were designed without expectations of having to cope, at a future date, with a multitude of zeroes.

Cash registers, accounting machines, petrol pump pricing meters, desk calculators, and the like, all coped very adequately with monetary calculations and recordals until inflation went berserk, but can no longer do so. They just don’t have the capacity to deal with transactions which can, in many instances, encompass ten or more digits (exclusive of cents but, being programmed for cents, nevertheless using three fields — two digits and a decimal point, plus 10 or more quantitive digits).

Accounting records, invoices, cash register till slips and the like do not have the space to accommodate a myriad of digits. Disarray is becoming more and more pronounced throughout commerce and industry.

Many argue that the time has come for Zimbabwe to issue a new currency, contending that doing so will address the problem. It had been the intent of the Reserve Bank of Zimbabwe to do so, and it has publicly foreshadowed the launch of a new currency in 2006. But that intent was formulated when inflation was falling (unfortunately, however, the fall proved to be temporary in nature). It then made sense to plan to issue a new currency. At present that is not so; it would be an exercise in the pointless for, so long as hyperinflation continues to prevail, the new currency would soon become as ineffectual as that which it would be replacing.

As a result, within a relatively limited short period of time, it would become necessary once again to issue a new currency, and so on ad infinitum until inflation falls to very low, sustainable levels. Moreover, the cost of a new currency is immense, for it is not only the cost of production that must be sustained, but also of withdrawal of the old and issue of the new, and of education of the urban and rural populace.

But Zimbabwe cannot do naught other than await the day when a new currency can be issued, for chaos is intensifying due to the growing “zero” problem confronting the handling of cash and accounting.

The interim solution is to eliminate the zeroes, as has been done over the years by many other countries, including Italy, Brazil and Argentina. Most recently, and very close to home, Mozambique has done so, only a few weeks ago. It has eliminated three zeroes from the metical. MZM1 000 000 became MTn 1 000, effective on July 1.

Mozambique did this by enacting in its legislative assembly a Bill to simplify its currency by establishing a conversion rate of one to a thousand. As a result the 1 000 metical coin is now worth one metical, and the highest denomination banknote, being for 500 000 meticals, is now worth 500 meticals.

Concurrently, all prices, charges, salaries and wages and so forth were correspondingly modified. The new legislation was enacted in December 2005, and provided for a series of processes to accommodate the transition to the redenominated currency. These included that the former metical would by symbolised MT, while the redenominated metical would be denominated MTn and that, for a period of nine months, from March 31 to December 31 2006, all prices of goods and services had to be indicated simultaneously in MTn and MT, thereby assuring consumers and others of equitable price conversion.

To give effect to this, all “economic agents” and other entities supplying goods or services were mandatorily obliged to procure that their computer programmes, stationery and other trading prerequisites would accommodate the double indication of prices.

The new law included provision that the conversion of the MT to the MTn would not impact adversely upon the existence, enforceability and tenure of any contracts which had provisions encompassing the MT, such provisions being deemed to be automatically converted to MTns, effectively by the elimination, in all instances, of three zeros. Taxpayers are required to render two income tax returns for 2006, one being for the first six months of 2006, completed on the basis of the MT, and the other being for the second half-year of 2006, completed on the basis of the MTn.

New bank notes, being MTn, are being issued but, transitionally, both old and new notes are valid, the old merely being discounted by three zeroes to arrive at the MTn value, and progressively as a sufficiency of MTn notes come into circulation, the old MT notes are to be withdrawn.

Mozambique has demonstrated a capacity to apply a practical, viable solution to a critical, economically debilitating problem. Zimbabwe needs to do likewise, and to do so promptly and dynamically, with total disregard for misplaced, ego-preservation related, fears that doing so can be construed as admission of economic failure or mis-management.

Succumbing to such fears can only compound the immense problems that are confronting the information technology industry, the financial sector, the distributive trades, the many other economic sectors and the populace as a whole.

Zimbabwe must stop dragging its feet, and must act positively, for the present monetary chaos can only worsen and contribute further to economic disorder, if the already long overdue need for action is not taken forthrightly and convincingly. Zimbabwe must eliminate the excess zeroes now.