THE re-emergence of the parallel currency market in Zimbabwe evokes a sense of déjà vu in many who experienced the country’s unprecedented economic meltdown which ended in 2009 after dollarisation.
Zimbabwe is facing a cash crisis triggered by bad governance, policy inconsistencies and structural problems.
As the Zimbabwe Independent has consistently reported before and after Reserve Bank of Zimbabwe governor John Mangudya introduced bond notes, the injection of the promissory currency — disguised as an export incentive — is doing more harm than good to the economy.
One problem that we pointed out from the onset was the danger posed by arbitrage and the attendant price distortions. During his monetary policy statement last Wednesday, one journalist asked the central bank chief if the apex bank was in the market buying hard currency. He denied it.
Zimbabwe now has a three-tier, if not four-tier, pricing system, which proves beyond reasonable doubt that cash remains king in a largely informal economy that ditched its now defunct currency for a basket of major international currencies. For a simple transaction at a petrol station, one has to declare if they are using bond notes, bank card, mobile money platforms or the United States dollar.
Exchange rate differentials obtaining in the market fly in the face of authorities’s promises that the use of bond notes would be optional as they would be introduced in sync with export earnings growth. That is not the case now. Treasury Bills, government’s go-to debt instrument in the absence of budgetary support, have also been trading at discounted rates in the secondary market as the fiscus scrounges for liquidity and money to pay government’s bloated expenditures. With market confidence at its lowest ebb, bond notes have not only promoted hedging and rent-seeking behaviour, but have also chased away good money, true to Grisham’s Law.
In addition, the introduction of bond notes has put local importers in a rut as some local banks reject the fiat currency to fund foreign payments as the economy continues to face severe foreign currency shortages. Banking institutions have witnessed increased pressure on their nostro accounts because Zimbabwe is now a net importer due to a wave of company closures and a dramatic fall in production. This has resulted in banks being unable to import cash to meet their clients’ demands and properly perform their financial intermediation role.
Sadly, there has been no discourse on currency reforms despite different submissions by captains of industry on which way to go. Just this week, it was reported that the country’s largest banking group, CBZ Holdings, had almost depleted its nostro accounts. How bad can it get? Only through holistic action, political and economic reforms and comprehensive change, can sustainable solutions be found to the country’s protracted economic crisis.
The country is crying out for urgent reform. The current piecemeal approach focussed on tinkering with the symptoms, not addressing the root causes, is an exercise in futility.