HomeAnalysisZim must just adopt rand

Zim must just adopt rand

SINCE the adoption of the multi-currency system in 2009 following stratospheric hyperinflation that some economists put at an annual rate of 79 billion percent or 98% a day — the second highest in history after Hungary’s 207% per day — debate has been raging on whether to continue the multi-currency regime or not.

Editor’s Memo,Dumisani Muleya
dmuleya@zimind.co.zw

Discussions on this will certainly gain renewed currency after Reserve Bank governor John Mangudya this week announced plans to introduce US$200 million bond notes backed by an Afreximbank facility amid fears that the demonitised Zimbabwe dollar might bounce back, despite assurances to the contrary.

Debate on whether or not to dollarise, “randify”, maintain the multi-currency regime or restore the defunct local currency is intensifying behind the scenes at high levels in government.

Some economists have even suggested a currency board. Others have proposed free banking.

The currency crisis is now a cause of grave concern to monetary and fiscal authorities. They are now said to be considering different options, including introducing the South African rand as the common legal tender.

This has all been triggered by the deteriorating liquidity crunch and cash shortages. An unsustainable trade or current account deficit, poor balance-of-payments position as well as massive revenue leakages and an uneven distribution of liquidity in the market have worsened the cash crisis.

As a result, the central bank announced the imminent arrival of bond notes in US$2, US$5, US$10 and US$20 denominations. Mangudya also came up with a series of other measures to promote the circulation of the rand and other currencies, while limiting use of the dollar.

The central bank’s measures came at a time the cash shortages are exacerbating against a backdrop of inadequate capital inflows, low commodity prices on the global markets, deflation and all-round economic implosion. Credit risk remains high in the challenging economic environment.

As we report in our lead story today, while the multi-currency system brought macro-economic and exchange rate stability, among many other benefits, it has also created serious problems, not least lack of monetary sovereignty and seigniorage. Monetary policy, money supply and other instruments to manage and influence the economy have been disabled. The economy has also been rendered uncompetitive. Since the US dollar is a reserve currency, illicit financial flows are now rampant.

So what is the solution? There are no easy answers or an easy way out.

However, the most widely shared view among economists and analysts seems to be that Zimbabwe must adopt the rand as its official currency. The country is currently using nine foreign currencies as legal tender, including the US dollar, rand, euro, the British pound, Chinese yuan, Botswana pula, Australian dollar, Indian rupee and Japanese yen.

University of Zimbabwe Professor Ashok Chakravarti has said adoption of the rand would benefit Zimbabwe immensely and rescue its imploding economy.

In a paper titled Liquidity Challenges in Zimbabwe: Turmoil and Tenacity, presented way back in 2014, Chakravarti said the rand was the best option available.

Of course, that was before the current bout of instability of the South African currency caused by a combination of a slowdown in the Chinese economy, slump in global primary commodity prices and political uncertainty in the neighbouring country.

“The simplest way to gain competitiveness in Zimbabwe is to adopt the rand, it will make our exports competitive and our imports low-cost and that will automatically result in the balance of trade becoming much better,” Chakravarti said. “It is not the ideal solution; the ideal solution is to have your own national currency. In the absence of having our own national currency, the second-best option is the rand.”

With South Africa as Zimbabwe’s major trading partner, accounting for about 60% of trade, using the rand is the most realistic alternative and best way to address the liquidity crunch grippling the economy since adoption of multi-currencies.

Authorities must swallow their pride and take decisive action by just adopting the rand.

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8 COMMENTS

  1. I for one totally agree that the rand is our best option given the above obvious facts. It will limit leakages and externalisation. The biggest problem is that most bigwigs are opposed to the adoption of the rand as this cannot be easily and corruptly stashed away in safe havens abroad. In the absence of a Magufuli leadership style in Zimbabwe, continuation of the status quo where millions in US$ are continuously blown on useless trips, worthless functions and non-productive programs is just brewing disaster for ourselves.

  2. Now Dumi, dont start..You mean we should roll over and allow the South Africans who have always wanted us as the 10th province to ride slipshod over us..You forget we got liberation first and if it were not for us those poor ‘mambara’ across the drying river would still be under apartheid..Now letting them lord it over us with their rand is the last straw..Now I can understand why they are ‘drying’ the Limpopo..so that they can take over this land that our Charles Coghlan and his 1923 Government refused to accept. If it is the Vic Falls that is making the South Africans salivate at the prospect of taking this great land over with their rand then why dont they come clean and say so.?We can let them have them..Yah rather give them the Vic Falls and the drying Limpopo than surrender our sovereignity..The RAND spells LOUDER than the imperialist dollar that we have FAILED to rule ourselves..No Dumi..we cant do this! NEVER! I mean it would be a clear case of the tail wagging the dog, huh? Who does not know that we are the SHINING GUIDING light of the region?

  3. To join the Rand Monetary Area (RMA) Zimbabwe will have to apply for membership. There is a joining criteria which Zimbabwe will have to fulfill b4 admission. It is called Macro-economic Convergence Criteria. It includes targets on debt,gdp,forex reserves, budget deficits, inflation etc. It is difficult to tell if South Africa would welcome Zimbabwe’s membership of RMA given it’s own curtent problems.In spite of various toxic issues facing Zimbabwe, joining RMA is the best option for Zimbabwe. The political leadership in Zimbabwe would have to swallow its pride and accept tough conditions for joining RMA.

  4. The reason why Zimbabwe is not keen to join the Rand Monetary Area is summed up in your last sentence mr Muleya.PRIDE.
    The Zim government is very proud and would rather use an unknown country`s currency rather use the Rand because of pride,yet all economic and trade fundamentals and all available options show that using the Rand is the best ever that the Zim gvt can do under these circumstances.
    The other problem is,as highlighted by @Themba is that for Zim to use the Rand,first they have to join the Rand Monetary Area which i think includes Swaziland,Lesotho,Namibia and South Africa itself,and then they must meet the tough conditions to be able to be accepted.

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