Helicopter Mangudya and Ncube’s Freudian slip up

The Brett Chulu Column

THIS remark by Reserve Bank of Zimbabwe (RBZ) governor John Mangudya in an interview with the Zimbabwe Independent last week sent chills down my spine: “You are aware that the economy was growing, let us be fair, as a result of the high expansionary fiscal policy.

“The economy has been expanding on the back of an expansionary fiscal policy . . . As a result of government’s expansionary fiscal policy, it also took the country out of deflation in February 2016. It was more about quantitative easing. This happens in Europe. When we do it here, people say there is something wrong.”

Former United States Federal Reserve head Ben Bernanke earned the nickname “Helicopter Ben” for doing exactly what Mangudya said he helped our government do.

Stripping away the economics jargon, Mangudya has revealed that it was deliberate government policy to print unbacked money through loans to government, with the express aim of expanding the economy. Bernanke was awarded the Helicopter Ben epithet by the US financial community in jest, likening him to the monetary economist Milton Friedman.

Friedman once suggested that he could print tonnes of dollars and drop them from a helicopter for the public to freely pick like manna, in the hope that people would spend the money and fire the economy out of a recession.

In helicopter money, the government simply issues IOUs (Treasury Bills and bonds) to a reserve bank, with the central bank paying for the TBs and bonds with money created out of thin air. This is exactly what happened in Zimbabwe, with a slight variation. Since we were using multi-currencies, the RBZ did not have the power and authority to print foreign currencies. It left this task to our banks — the RBZ simply issued TBs to banks and banks created loans, crediting them to government and its creditors in the form of Real-Time Gross Settlement (RTGS) balances.

Mangudya’s helicopter money admission is as shocking as it is brazen. All along, the 1:1 parity hymn was an indescribable financial creature that did not square with decent economic facts — helicopter RTGS balances and helicopter bond notes could not be real US dollars because quantitative easing (QE) 101 is that you do not QE other people’s currencies.

Too little, too late, Mangudya, in his own unforced confession at the post-MPS breakfast meeting, which turned out to be a confessional of sorts, self-confessed that “I am guilty as charged, taking exporters’ money at 1:1 when the price (US dollar: RTGS balances-bond note exchange rate) had risen by three or four times; it was unfair.”

Put more forthrightly, Mangudya was saying he had been taking exporters’ foreign currency at one-quarter to one-third of its value through the 1:1 monetary zoomorphic fiction.

As if Mangudya’s helicopter money admission was not appalling enough, Finance minister Mthuli Ncube’s confession that right from the outset of his tenure as Finance minister he was playing psychological games with us was in bad taste.

The minister, in a moment of unguarded excitement during the post-MPS breakfast meeting-turned-confessional, let a Freudian slip. Ncube, unbelievably, let slip that all along when he was saying a new currency would be coming within 12 months, he was preparing us psychologically for this moment (the quasi-liberalisation of the forex market).

This parapraxis moment all but revealed that the RTGS dollar is practically our new currency, cleverly shielded from the Zimdollar parallelism by maintaining it as a quasi-currency. It is still a quasi-currency; foreign central banks cannot keep RTGS dollars in their reserves. Put simply, you cannot exchange your RTGS dollars for rand at a bureau de change in South Africa, for example. This, Ncube and Mangudya hope, will forestall the perception that making the RTGS dollar our reference currency will make it a Zimdollar.

The conundrum Ncube faced before the MPS was how to destroy the 1:1 zoomorphism, letting the helicopter currencies (RTGS balances and bond notes) created by Mangudya float against the greenback without driving the perception that the reviled Zimdollar was back.

A compromise was settled for — a dirty float — instead of a clean float (100% liberalised forex market). The dirty float is, to all intents and purposes, an upgraded 1:1.

Mangudya would not have a problem with this because it still gave him the excuse to continue retaining sizeable chunks of exporters’ money and allowing him considerable power to influence the forex rates.

In theory, Mangudya’s dirty float allows him to directly sell US dollars to banks or buy them to maintain a forex rate he desires. A dirty float does not come cheap. Mangudya must, after all, first have the US dollars in his war chest.

Secondly, he must have the RTGS dollars in his war chest too. It is an open secret that Mangudya neither has the US dollars nor the RTGS dollars. That should worry us.

Mangudya has not told us where he will get the RTGS dollars to buy the exporters’ forex which he is now going to buy 2,5 times expensive. Mthuli promised us that he is and will continue running a tight fiscal ship, vowing not to allow government to drop more helicopter money (printing money through Treasury Bills).

Mthuli has grounded Mangudya’s helicopter (more like hell-copter), so he says. This begs the question as to where Mangudya will get the RTGS dollars to buy forex from exporters. Knowing fully well that his helicopter is grounded, Mangudya told us he had secured a drawdown loan facility (what he calls line of credit) from a foreign funder to kick-start the interbank market.

It is extremely unnerving that this supposed foreign provider of lines of credit has faith that the RBZ will repay, yet it is not a productive enterprise that generates forex.
This foreign funder is not some Father Christmas. It is most likely that the RBZ has entered into a trade finance deal, promising to repay from tobacco forex earnings.

This should explain why the tobacco farmers will have to surrender 60-65% of their forex earnings to the RBZ. Still, the elephant in the room is where Mangudya will get the RTGS dollars to buy the forex from exporters.

Here is my thesis. My analysis of money supply and forex receipts show that the informal forex market rates (proxy fully liberalised forex market) shows that the informal forex market has fundamentally been discounting Mangudya’s excess helicopter money to reach parity with the US dollar since the helicopter money (RTGS balances) was said to be the stand-in for the US dollar.

At the published $RTGS10,066 billion worth of broad money supply (RTGS balances), assuming our exports will remain at US$6,3 billion per year, a clean float rate of 1,67 can be supported. A broad money supply of $RTGS15,7 billion at the same export receipts level will sustain a free float exchange rate of 2,5, on a forex demand and supply basis. This is the gap monetary authorities might exploit to electronically print more RTGS dollars.

On this basis, Mangudya might be tempted to convince Ncube to give him back his helicopter to “quantitative-ease” (euphemism for printing more RTGS balances) two billion or so to buy the now more expensive exporters’ forex earnings.

My money (no pun intended) is on the RBZ silently dropping more helicopter money, with Treasury looking the other way. If the Treasury chief plays hard ball on this one, he will risk the RTGS dollars transitioning, perception-wise, to the much-hated Zimdollar, as Mangudya will be unable to pile into the interbank market to buy and sell in order to maintain his 2,5 dirty float.

Mangudya may need to ask for his helicopter to be returned — soon.

Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal. — brettchuluconsultant@gmail.com