RESERVE Bank of Zimbabwe (RBZ) governor Gideon Gono’s currency reforms, which came against the background of an accelerating economic decline, was
a clear admission of economic failure by government, analysts have said.
The reforms should have been undertaken once measures to stabilise the economy had succeeded.
Gono’s major policy proposal slashing zeros from the local currency was widely seen as confirmation that government was unable to deal decisively with inflation.
The cosmetic changes to the currency, made by dropping three zeros, was, according to Gono, aimed at bringing stability and convenience to monetary transactions.
While indeed the removal of the zeros would bring convenience to the public, the abruptness of the decision indicated a poor execution strategy, analysts said.
There was chaos in banks, shops and electricity and telephone bill payment halls this week as people and companies tried to adjust their payments systems to accommodate payments in the new currency.
The problem was compounded by the fact that old bearer cheques remained in circulation, creating a dual payment system. In an attempt to reassure a sceptical public Gono this week visited banking halls and retail shops.
CFX economist Blessing Sakupwanya said currency reforms required a stable economy. “The removal of zeros is a mechanical process that we will have to do again if inflation remains at current levels,” Sakupwanya said.
“Given the current problems in the economy, it doesn’t seem like a currency reform will work,” Sakupwanya said.
A number of countries that had successfully undertaken currency reforms had succeeded only after stabilising their economies, commentators said.
Peru dismally failed to reform its currency in the early 80s because of high inflation.
Independent economic consultant John Robertson said as long as inflation remained above 1 000%, Zimbabwe would be forced to cut more zeros periodically.
“We might soon need to go back and do the whole process again. The problem is that we have high inflation,” Robertson said.
Finance minister Herbert Murerwa last week said inflation would end the year at between 950% and 1 000%, a revision of his earlier forecast putting inflation rate at 250% by year-end.
“We can only reduce inflation if we revive the agricultural sector that we destroyed, stop corruption, protect property rights and get foreign aid,” Robertson said.