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Zimdollar comeback speculation unsettling

DESPITE the serious shakiness of the inclusive government, apparent from the onset, investors had begun showing renewed interest in the country since its formation.

The main attraction has been the hope for an economic revival emanating from some good polices put in place by the government. A recent IMF report hailed the local fiscal authorities’ strict adherence to cash budgeting as one of the reasons inflation has been declining. Some risk takers realise that it is possible to invest in the country and get a high risk adjusted return even if political squabbles persist just so long as the infighting does not lead to the collapse of the inclusive government.
The current impasse following the disengagement of MDC-T from government has heightened fears that a collapse could result. This has stoked speculation that the Zimbabwe dollar could then be re-introduced. The emergence of this rumour at a time when the economy has not only stabilised but also turned around is unsettling to business and people alike. It has been further exacerbated by the fact that despite the story being widespread no one in government has come out to dispel it completely in order to calm the situation.
For more than seven months now people have enjoyed the benefit of transacting using stable currencies. Prices of some commodities have fallen with monthly inflation averaging -1, 01% for the year to date. In 2008, prices at their peak were rising by a minimum of 100% everyday.  Whereas the current average wage in the economy of US$150 is too modest relative to prices, the truth is that it has brought much relief to many. There is little doubt that many people would rather have the current economic policies, including multiple currencies, than revert to the conditions which prevailed in 2008.
Failure to quickly set the record straight could cause more panic in the markets. This could hamper the financial system which was beginning to see public confidence improving. Since the impasse began, foreign investors have withheld their money while others, particularly locals pulled out their investments preferring to hold cash instead. From the peak market capitalisation of US$4,35, 7 billion on October 22 the market has lost US$630 million by November 4 because of panic selling. 
The market weakness could still continue if the bad news persists as investors would at best withhold new funding while at worst may start disposing off their investments. With markets elsewhere steadily improving, the local bourse could experience a flight of capital to foreign economies which are more stable.
Also worrisome is the likely negative impact the impasse and the prospect of the return of the Zim dollar could have on the banking system. Memories are still fresh of how some people and organisations lost their foreign currency from bank accounts after balances were summarily converted into Zim dollars without their consent. 
This has prompted some depositors to call in their deposits from financial institutions. Given the uncertainty many people prefer to keep their wealth in cash. Others are contemplating taking their money offshore for security reasons. All this could take banks 10 months back when they laboured to pick up deposits.
Without deposits banks cannot give credit to borrowers and with no funding, companies will not be able to produce anything.  The economic revival which had become evident of late could quickly reverse itself with ghastly consequences.
The suspension of the Zimbabwe dollar early this year was almost unanimously hailed by everyone in the country. Besides, many had ceased using it even before then preferring stable currencies and barter arrangements. For a long time the fuel coupon had become the most preferred medium of exchange because it was easily convertible into hard currency. In its last days the Zimbabwe dollar had no value of its own but was only valuable if it could be changed quickly into foreign currency. 
Worse, it was not possible to print enough notes to meet the demand for cash because of ageing printing equipment. Cash was being rationed through the imposition of withdrawal limits.
Those fortunate enough to have access to cash through the right connections would gain from using it to buy foreign exchange on the parallel market. These relatively few may welcome the re-instatement of the Zim dollar so that they could profit once more. For the rest of the people it would be an unwanted returnee.


Ranga Makwata

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