Much Ado About Nothing

ZIMBABWEANS have become quite an expectant bunch.

 

The rumour-mill is probably always ready to provide the nation with some new gossip about where we are all heading. And despite previous disappointments, it looks like that hope never really fades.

For many, such a feeling should have been heightened this past Wednesday morning when bankers, business executives and ordinary citizens alike were all waiting for the half yearly monetary policy statement (MPS) from the central bank governor. The scene was set, with the governor looking ready to announce a comprehensive economic rescue package. The initial delay and then the eventual arrival of the head of state must have caused its fair share of speculation. Expectations were high.

For the most part it ended up seeming like less of a full scale policy statement than an announcement of a change in currency.

The removal of zeros ushered in a new currency while cash withdrawal limits were also increased.

The motivation behind getting rid of the bearer note system before addressing the fundamentals is indeed baffling. At this point the only good to come from removing zeros is to improve the convenience of transacting.

In any case most businesses had already unofficially removed several of them to keep their internal systems going. Even coffee shops had long adopted the use of thollars (thousand dollars) quite a while back. A return to a standardised measure was needed. So what was the point especially if we will have to go through it again a few months down the line?

Again, if the point was to increase convenience for consumers then surely converting $1 trillion into the new dollar is probably easier than working with a $10 billion conversion rate.

This would have had the added advantage of actually making the new family of coins worth something.

I can hardly think of anything I can buy for the new dollar. In addition, having the new dollar set at a trillion would have increased its longevity given the inflation level we are currently experiencing.

An interesting observation is that if cash withdrawal limits have been increased to $2 trillion (or 200 new dollars), who is going to be able to access the new $500 note? Would it by implication be illegal to have it? Maybe it is meant for those who kept their old coins and are hoping to have enough to reach the new $500.

It would all seem like there was no point to this exercise at all.

Or perhaps there is some order in chaos. The new notes seem to have “Harare 2007” imprinted on them (if the RBZ posters going round are anything to go by). Would this be a batch from that botched attempt at currency reform at the end of last year?

Conspiracy theorists would have had a go that the monetary authorities might have some insider info on the political developments. After all since a new batch of currency is said to be sitting somewhere in Germany, making use of the money already on hand might just make sense.

The idea would be to increase convenience while, knowing fully well that a similar operation would be necessary in the not too distant future (hopefully when foreign direct investment starts trickling in).

The problem, however, comes when the exercise keeps happening over and over again. A change in currency normally goes hand in hand with a further deterioration in the perception of any currency.

For as long as an active drive towards stimulating an increase in actual production is not undertaken then any policy statement would be of little effect.

The supply side remains largely ignored (with the decrease in retention ratio doing little to encourage production). The status quo should remain largely unchanged with inflation expected to gallop away at an even faster pace.

Many expect this move alone to have an inflationary impact but one would think we are past the stage where rounding up prices would make a significant contribution to inflation figures. Give it a few months and expect fresh calls for another round of zero slashing.

The point here is not so much that this exercise was an unnecessary one but more so that it would be pointless without the requisite preconditions to support the economic rejuvenation.

Zimbabwe needs to address issues around production and foreign currency generation as a means to sorting out the hyperinflationary environment we are in.

For all the pomp and fanfare created ahead of the MPS a currency reform was on many levels not expected to be the highlight of Wednesday’s statement. Far from it. At most it should have perhaps been as a supporting addition to a more encompassing solution.

Then again, as the governor quite rightly put it, everything hangs on a resolution to the political quagmire we are currently in. And perhaps for as long as a second round of handshakes does not happen then anything beyond chopping off of zeros is a bit too much to expect.

lFor any comments and suggestions please contact Tich via email on atthemarket@tetrad.co.zw