AS the debate over whether the bond note has managed to solve the country’s cash crisis rages on, stunning revelations that President Robert Mugabe in 2010 rejected the adoption of the South African rand as official currency have been made.
By Taurai Mangudhla
Former finance minister Tendai Biti last week disclosed Mugabe rejected a suggestion to adopt the rand as the official currency, possibly for fear of being politically subservient to his South African counterpart, Jacob Zuma.
The information comes as Zimbabwe, eight years after adopting a multi-currency regime dominated by the United States dollar, is reflecting on the decision amid calls by business for government to look at other alternatives, including formally adopting the rand.
The debate for formal adoption of the rand took a surprise twist late 2016 when central bank governor John Mangudya said Zimbabwe needed its own currency before it is eligible to join the rand union.
Proponents of the rand union are agonising with the sad reality that they are inadvertently advocating for the now defunct Zimbabwe dollar.
Last week, local media quoted Mines minister Walter Chidhakwa as saying government was working on a plan to establish a gold reserve set to anchor the introduction of a local currency.
This has brought back fresh fears of a hyperinflationary environment that wiped out savings and left shops with empty shelves as they were unable to restock after the local currency was rendered valueless against regional currencies.
The move remains questionable given the economic stability stemming from the use of a multi-currency regime that is largely dominated by the US dollar while the introduction of a weak currency sends shivers down the spines of citizens whose savings and livelihoods are at stake.
Analysts argue that the return of the Zimbabwe dollar is catastrophic given that a multi-currency regime remains the only viable solution although it might need to be revisited in terms of the composition of the basket.
The US dollar has created problems for the Zimbabwean economy through cash leakages with billions estimated to have evaporated into other economies while government imports millions every week.
This has led to cash shortages that worsened towards the end of 2015, resulting in long queues.
Government pushed for the use of plastic money and responded by introducing a surrogate currency, the bond note, backed by a US$200 million Afreximbank facility with a view to improve the cash crisis. The impact of the bond notes has been minimal, given the persisting queues at banks. The US dollar, the bond note and plastic money have been trading at different values on the market as importers need hard currency to purchase supplies.
Recently, a horde of disgruntled farmers along with vendors around the Tobacco Sales Floor premises, teamed up to protest against the unavailability of cash at banks as just but one of the manifestations of the liquidity crunch and cash crisis that is threatening the economy, fuelling social problems and unrest.
Some unscrupulous dealers, who have access to cash have taken advantage of the desperate cash-hungry farmers, buying tobacco from them at low prices and later reselling the golden leaf at the tobacco floors at much higher prices.
A black market for cash is also now flourishing with producers or retailers who depend on imports being forced to pay a premium to access the United States dollar. The extra cost of money is passed on to the consumer. Economist John Robertson has warned the cash crisis is destroying business activity with informal business being the worst affected.
As such, debate on how the country can get out of this quagmire has also taken centre stage, courting mixed reactions from economists, politicians and the public in general.
Economist Kipson Gundani said the multi-currency regime remains the best option although there is urgent need to reshuffle the basket and have a relatively weaker currency as the trading currency, the rand being the most convenient option.
Gundani said the fundamentals are not yet right to sustain a local currency as production levels are still low, leaving the country vulnerable to current account imbalances.
He said resolving the currency debate alone will not sustain the economy going forward.
“However, we are fast suffering from a risk of transposition as a country. Our challenge has little to do with the currency scenario. Tinkering with the colour of money is not a panacea to our problems. A solution that does not push the production frontiers is unlikely to yield any over lasting results,” Gundani added.
Economist Tapiwa Mashakada said debate should not be about currencies, but around stimulating production and achieving high growth on the back of policy consistency and sound economic planning.
“That way you get to strengthen the national balance sheet and build good reserves as well as bridge the trade gap. These are the fundamentals that will anchor any the introduction of any currency in Zimbabwe. Remember the old adage too much money must not chase too few goods,” Mashakada said.
“Let us address the supply side first. How to do it is answered by opening up Zimbabwe to new domestic and foreign direct investment (FDI) and transforming all production methods. Let money flow into Zimbabwe easily and reasonably regulate its outflow. In short, liberalise the foreign exchange sector to increase money supply. Once the fundamentals are right people should not care which form of currency Zimbabwe adopts.”
Businessman Shingi Munyeza argued that the local currency has been around in the form of Treasury Bills and the bond notes. As a result, Munyeza said, this has driven out the multi-currencies which have now been turned into a commodity instead of a medium of exchange.
“The other aspect is that Zimbabwe is severely under-banked, which makes the desire and need for cash more excessive than normal when we should be transacting using e-commerce and plastic money,” Munyeza said.
“What is needed is economic structural reforms which will bring down public recurrent expenditure so that we stimulate savings and investment. Policy consistency is needed to bring about FDI inflows. Increase in productivity is needed so as to improve on both our exports and import substitution. Basically, we are still a long way from resolving our economic problems and the general election season is never the time to handle austerity measures by any sitting government. Most of what needs to be corrected in our economy will realistically happen after the 2018 elections if there is political will to do so.”