BANKERS Association of Zimbabwe president Charity Jinya this week further fuelled the raging currency debate when she said the use of the South African rand as the anchor legal tender locally, given the deteriorating liquidity crunch and cash crisis, is the best available option.
ZIMBABWE INDEPENDENT COMMENT
Since the adoption of the multi-currency system — which comprises a basket of nine foreign currencies — in 2009 following stratospheric inflation, debate has been growing on the matters.
Four options are realistically available: maintaining the multi-currency system; full dollarisation, adopting the rand or going back to the demonitised Zimbabwean dollar.
Indicating Zimbabwe’s economy is already integrated into South Africa, which accounts for over 60% of our exports and almost 50% imports, among other critical issues, Jinya said adopting the rand was much better. “It is not sustainable for the US dollar to continue as the major transacting currency; so we would recommend that the South African rand be used as the main transacting currency,” Jinya said.
Many agree, although some have reservations due to South Africa’s economic instability and rand volatility. Others disagree for political reasons. Yet the truth remains that Zimbabwe’s unsustainable current account deficit, poor balance-of-payments position and massive externalisation have worsened the cash crisis. Political, leadership and governance issues underlie the problem.
As a result, the Reserve Bank announced on May 4 the advent of bond notes in US$2, US$5, US$10 and US$20 denominations in October. The central bank’s measures also came against a backdrop of inadequate capital inflows, low commodity prices, deflation and all-round economic implosion. Credit risk also remains high.
Although Finance minister Patrick Chinamasa is not keen on the rand, experts say it will address some immediate challenges. For instance, it will increase money supply; stem externalisation and capital flight; address the liquidity problem; help industry retool; catalyse harmonisation of budget deficit, interest rates, inflation and exchange rate issues as well as improve the country’s competitiveness.
It will also make Zimbabwe’s exports more competitive — using the appreciating and 45% overvalued greenback makes them uncompetitive — and imports at a lower cost, which automatically addresses the trade imbalance and the resultant current account deficit.
Of course, the rand will not address Zimbabwe’s political and structural issues, but it will bring some reprieve. The multi-currency system has already failed because it is now de facto dollarisation. And full dollarisation is a non-starter with Zidera still in force as it makes it impossible to have formal arrangements with the US and the Federal Reserve. Although countries can dollarise unilaterally, having formal arrangements with the US and its Federal Reserve helps a lot.
Using the rand is not the ideal solution; the best way out is to have your own national currency, but if you print your currency to decimation and in the process inevitably lose monetary sovereignty and control over the economy, you cannot turn around to claim political sovereignty to avoid hard economic choices. People must just get real.