GOVERNMENT’S top advisor on Ease of Doing Business reforms, Ashok Chakravarti, has recommended that bond notes operate as the official local currency and not as a surrogate of the United States dollar.
Hazel Ndebele/Kudzai Kuwaza
Speaking at last night’s Southern African Political Economic Series policy discussion titled Zimbabwe’s Economy: How and When to Reintroduce a Viable Zimbabwe Currency, Chakravarti said scrapping the pegging of the bond note to the US dollar by the Reserve Bank of Zimbabwe (RBZ) would halt the liquidity crisis.
“Let us accept that we already have the bond notes as a local currency. RBZ has put a peg between the bond and the US dollar and yet it is not equal,” Chakravarti, who was speaking as an independent analyst, pointed out.
“My recommendation is that to eliminate the liquidity crisis, government needs to remove the peg and let the bond note operate on its own and that way it will be a real currency.”
Chakravarti, a University of Zimbabwe economics professor, said keeping the peg is only depreciating the value of the Real-Time Gross Settlement system (RTGS). He noted that the Confederation of Zimbabwe Industries had revealed that the RTGS premium to real money is now at 30%, meaning if one had US$1 000 in RTGS, they only have US$700 in real money. He added that it was “pointless” to have the Afrieximbank facility, which the central bank said backs the bond notes, if it is not convertible.”
Chakravarti said it was unhealthy for the economy to have government crowding out funding for the private sector. He noted that the country has the highest tax-to-GDP in Africa which is 30% against the continental average of 22%, a situation he described as unviable.
Chakravarti predicted that by December this year bond notes will constitute 50 to 60% of the currency in circulation which will qualify it as a local currency.
Former Finance minister Tendai Biti said he doubted whether the bond notes are backed by the Afreximbank facility.
“I agree with Ashok Chakravarti that the bond notes area a currency because they are supposedly 1:1 with the US dollar, they are legal tender,” Biti said.
“However, we are living in an era of fake news and this is fake money. It is fictitious money as it is not baked by anything.
“No one has seen the term sheet of the Afreximbank facility so we do not know if it even exists and right now (Reserve Bank governor John) Mangudya has said there are more bond notes backed by the same Afreximbank facility. It is pure gross misrepresentation backed by nothing.”
Biti recommended the establishment of a Zimbabwe Emergency Fund with contributions from international financial institutions to resuscitate the ailing economy. He said the country needs to improve its competitiveness, improve the ease of doing business, reduce the wage bill and eradicate ghost workers, among other measures, before a local currency can be introduced. The former finance minister said it was also imperative to build reserves of at least US$9 billion before the country could qualify to have its own currency.
Former Reserve Bank governor Kombo Moyana said there was a need for businesspeople and those who are technically astute to come up with a model on how and when a new currency can be introduced.