Act swiftly on currency issue

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Illegal money changers pose while exchanging a new Zimbabwe bond note (L) and U.S. dollar notes in the capital Harare, Zimbabwe, November 28, 2016. REUTERS/Philimon Bulawayo

One of the most ridiculous manifestations of Zimbabwe’s currency crisis is playing out on the stock exchange, where listed companies are wheeling out their financial results purportedly denominated in “United States dollars”, yet everybody knows for a fact that these figures are misleading.

Editorial

The currency crisis has given rise to a financial accounting conundrum, reducing the country to a laughing stock in the eyes of foreign investors and business analysts. Companies which sell goods and services predominantly using the medium of Real Time Gross Settlement (RTGS) and bond notes cannot convince the world that the money sitting on their books is in the form of US dollars. To think otherwise is to indulge in wishful thinking. However, it is not the fault of the private sector. By failing to take decisive action on the currency crisis, the government has not shown leadership and this has contaminated the whole economy, with far-reaching consequences.

How can prospective investors take Zimbabwe seriously when the country lacks clarity on a matter as fundamental as currency?

When a government begins rejecting payment of import duty in its own surrogate currency — the bond note and its RTGS electronic version — there is clearly a big problem, although the authorities are, for various reasons, unwilling or unable to tackle the elephant in the room.

Considering the sense of paralysis that has pervaded the entire country, most people are convinced that the economic outlook is gloomy. This is not rocket science; citizens are bound to get despondent when a suffocating sense of hopelessness grips the populace and there are no immediate solutions in sight.

If government is rejecting its own currency, soon enough the market will follow suit. Already, there are reports that some service stations in Harare are selling fuel in foreign currency — meaning the market is following in the footsteps of the government. We must ask: at what cost? But in the face of a severe currency headache, what options does a broke and internationally isolated government have?

Some economists have suggested — rather blithely — that Zimbabwe should adopt the rand as a quick fix to the currency crisis. Their argument is that, since South Africa is this country’s biggest trading partner, embracing the rand as the official currency can be conceivably fraught with fewer complications than, say, adopting the US dollar.

The rand argument, though proffered in good faith, is flawed.

For Zimbabwe to join the Common Monetary Area, which links South Africa, Namibia, Lesotho and Eswatini, into a monetary union, it must fulfil a long and daunting list of qualifying criteria.

The first requirement is that Zimbabwe must have its own currency. On that count alone, the country falters.

Quick-fix prescriptions may sound exciting, but the brutal reality is that they are not sustainable. What is required is a long-term solution and it can only be found after the country seriously embarks on genuine economic and political reforms. A stable currency is a function of a stable economy; if the economic fundamentals are sorted out, the pieces of the jigsaw puzzle will begin falling in place.

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