RESERVE Bank of Zimbabwe governor Gideon Gono has defended the printing of money by government saying this was necessary to support the productive sector.<
“Printing money for the productive sector is not inflationary, it is also not inflationary when the money is used for infrastructural development like building dams. Money becomes inflationary when it crosses the border and is used for speculative purposes,” Gono said.
In response to a question insinuating that the printing of money was fuelling inflation, Gono said they would print more money as long as it supported Zimbabwe’s rebuilding.
Gono was speaking at a three-day annual congress of the Confederation of Zimbabwe Industries in Bulawayo this week. He said other countries had printed money to support rebuilding programmes after emerging from conflicts and that there was nothing sinister with Zimbabwe doing the same since the country was coming out of an agricultural “revolution”.
“We are coming out of a revolution,” he said. “The land reform exercise was a revolution and it was necessary to print money. Other countries coming out of conflicts have done it, there is no problem with Zimbabwe doing that.”
Government at the beginning of the year printed $21 trillion to buy foreign currency to settle its outstanding US$9 million debt with the International Monetary Fund (IMF)’s General Resources Account, a move economists say fuels inflation.
The government printed a further $61 trillion to pay increased salaries for civil servants. Gono in his defence said the United States printed money in 1779 that led to a 5 560% inflation rate later on.
Gono said in the post-1945 period several countries in Europe resorted to printing money to support the re-construction effort.
“In some countries the rate of inflation went up to a million percent. South Korea for example after its occupation by Japan was in a crisis and used its central bank to print money until 1979. Look where its economy is today,” Gono said.
He said countries such as Russia, China and Germany in the post-revolution periods also printed money to support several projects.
“The land reform did not result in inflows but had to do more with agricultural reforms that needed money and we had to print money to support land reform with inputs,” Gono said.
On money supply, Gono said business should not demand cash for all transactions but encourage the use of cheques and other technologies.
“Please let us get back to normal, the world is moving away from cash transactions and we urge business not to demand cash for all transactions,” he said.