“Replacing the multi-currency regime anchored in the United States dollar by the South African rand as the sole transaction currency would help reduce over-valuation and stimulate exports and growth. Under any currency regime, Zimbabwe needs to adhere to sound macro-economic policies, avoid overspending on public wages and create environment conducive for investment,” Mthuli said in a working paper series titled The Real Exchange Rate and Growth in Zimbabwe: Does the Currency Regime Matter?
Compiled by Lisa Tazviinga
“What I would argue now is we have to remove the bond notes currency which is becoming a surrogate Zimbabwe dollar, but without the macro-economic credibility to support it. So, that should be removed because it is bad money and we know that in economics, bad money drives out good money, it’s not surprising that even the US dollars are now in short supply because people are not banking those, but keeping them under their mattresses. So I would say the current course of action is to remove the bond notes and let the US dollar again be the core currency of focus, but over time we have to bring back the Zimbabwean dollar.”
“I am very clear that there have to be currency reforms and the (current) currency approach is not working. In doing so, there are three choices that I will explore and pursue with urgency: One, adopt the US dollar only and remove the bond notes from circulation through a demonetisation process and also liberalise exchange controls. Two, adopt the rand by negotiating to join the Rand Monetary Area, and this will close the gap in loss of competitiveness against our largest trading partner, South Africa. Three, adopt a new Zim dollar, and here one needs to be clear that it has to be backed by adequate foreign reserves and macro-economic conditions for its stability. Foreign currency accounts will also be introduced. For sure, currency reforms will be implemented. I would like to implement this by year-end,” Ncube tells a local publication soon after being appointed.
“We need certain triggers such as full monetary committee that is working, market based foreign exchange, investors and those in who are exporting can have foreign currency accounts — build those building blocks for full monetary policy. But also, as we build reserves, including gold reserves to have a sense of the input cover levels, we need to issue a domestic currency safely and credibly,” Ncube tells Bloomberg about conditions necessary before the introduction of local currency.
“The market is setting the pace. What is left for us is choreography and management of the economic fundamentals. The economy has dollarised. RTGS balances are over $6 billion. The market is doing everything, we are going through a transition. The market has said these currencies (US dollar and bond notes) are not at par. I don’t want to argue with the market. The bond notes will, at some point, have to be demonetised and I cannot tell you (when that will be),” Ncube says at Chatham House in London.
“From this multi-currency basket, the US dollar is our reference currency, also applying to the 2019 national budget. Government commits to preserving the value of money balances on the current rate of exchange of 1:1 in order to protect people’s savings and balance sheet,” Ncube maintains that the US dollar and the bond note are at par during his 2019 budget presentation.
“We have to choose an option that is credible, that is sustainable and that is least costly, both in terms of time administratively and in terms of time building reserves. There is a cost to introducing a currency; so you have to evaluate all of this. But before you do that, sort out the fundamentals,” Ncube tells editors that a new currency will only be introduced when fundamentals are in place.
“With currency reforms, you can never be precise, but I say 12 months. I am preparing minds; I am preparing your mind, so it is coming,” Ncube warns of impending currency reforms while attending the IMF and World Bank Spring Meetings in Washington.
“What was happening in the market was that, the market was self-US-dollarising; it was uncontrollable and we felt that we needed to bring the situation under control,” Ncube explains why government re-introduced the Zimbabwean dollar on Monday.