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Zimdollar: Return of Paper Money and the Numbers Game

WHEN President Robert Mugabe attacked former Finance Minister Herbert Murerwa in a televised interview for sticking too much “to textbook economics”, many were surprised. 

His beef with Murerwa was that the then Finance minister had attempted to put a stop to quasi-fiscal activities — a euphemism for printing money — before he got sacked from his job.
By then, central bank chief Gideon Gono’s habit of running the printing press to fund working capital requirements of state enterprises was still in its infancy. The nation got the message loud and clear; let Gono print money.
He also gave the nation an insight into his economic beliefs. He believed then that printing money to save the masses was not a bad idea, never mind the Maynard Keyneses of the economic world.
Mugabe argued that the greater good of printing money, according to him, was by far outweighed the evil of inflation. In simpler terms he blessed Gono’s efforts and castigated reason and knowledge.
Ironically, Mugabe is said to possess an economics degree.
Just when the nation was beginning to think Mugabe had abandoned his strange populist beliefs, he is proving to be a very consistent believer.
The aged leader wants to see the Zimbabwe dollar back in circulation by year-end. Yes, end of this year.
This is not the first time he has made this wish known this year.
At the Zanu PF Women’s League conference a few months back, Mugabe told party supporters that the absence of the Zimdollar in circulation was hurting the ordinary man on the street especially the rural folk.
This is the essence of Mugabe’s argument. Forget economic stability. Forget price stability and consider the rural folk.
Essentially, it could be back to the numbers game again for Zimbabweans if Mugabe has his way. 
Picture this: going to the supermarket with a plastic bag of dollars to buy breakfast. Encouraging the little ones to be mathematically sharp and keep counting to a billion. Anything short of a billion is no good because a bus ride will be costing trillions and along with other such norms of living in a modern day Weimar Republic.
Mugabe is not alone in his campaign to bring back the dollar.
Central bank chief Gideon Gono has been trying to sell the idea to the masses.
Gono is proposing a gold standard as a monetary system.
Never mind the monetary system was abandoned a few years after the Second World War. Since then no other country has gold standards. Not even North Korea. The pariah state just prints its own greenbacks without the support of the US government. Maybe Zimbabwe should take a cue from its communist friends.
Taking a cue from his boss, Gono is possibly oiling the printing press in anticipation of the green light to print money.
But there is just one problem — getting the populace to accept the money.
By December last year, Zimbabweans were rejecting transactions in the Zimdollar arguing most denominations mere pieces of paper. Will the proposed Zimdollar face the same fate?
Analysts say lifting confidence in the local unit will be an uphill task given the rejection it faced in the past. Supposing that confidence is remotely lifted, Gono is seen as a rigid government bureaucrat, who would free foreign exchange rates in line with inflation stoking the foreign currency black market.
But Gono defends bringing back the Zimbabwe dollar on the grounds the exercise is not going to be a “blind” one.
He believes a “guarded” reintroduction of the currency could work and that the new currency would have “real and tangible” worth.
He said:  “Such a new currency will have a real, tangible worth as embalmed in the real assets backing it. This gives the new currency the characteristic of general acceptability as a fluent medium of exchange in goods and services markets.”
“Given the country’s proven resources of gold, platinum and diamonds, among several other minerals, a fully-backed currency which can freely convert back to the real underlying assets at the instance of the currency holders’ wishes will be having the desirable character of being a legitimate store of value. In other words, the currency will have a stable value of time given the direct link to the volume of tangible assets from the real sector.”
Mugabe says rural Zimbabweans have no access to the US dollar and all other foreign exchange units being used in the country. He argues that villagers need the Zimdollar to survive.
Gono’s ready commitment to oiling up the printing machines does not help that much.
Financial institutions had to fund upgrades of failing IT systems on a monthly basis. Gono’s solution to dealing with the numbers game was to remove the increasing number of zeroes. But the stubborn zeroes always came back faster than they had been removed.
Finance Minister Tendai Biti says he would rather commit suicide than see the dollar resurface under his watch.
If Biti quits his job over the issue, then it could present further problems to an already troubled unity government.
Biti said the unity government’s formation was the last nail on the local unit’s coffin. Its resurrection will unnerve many, analysts predict.

 

Chris Muronzi

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