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Tight conditions for Zimbabwe under dollarised economy - policy analyst
05 Oct 2017 at 08:58hrs | Views
A policy analyst Butler Tambo has said conditions for Zimbabwe under dollarisation are very tight for the government to be supplied with credit by the Reserve Bank of Zimbabwe.
He said under this dollarized regime, Zimbabwe's fiscal authorities could no longer demand that the Reserve Bank of Zimbabwe supply the government with credit (read: print money).
"This hard budget constraint became too onerous for the free spending government to abide by. In consequence, Zimbabwe's government has employed Harry Houdini's magic and circumvented the hard budget constraint imposed by dollarization. It has done so by creating a new fake dollar, which is referred to as the "New Zim Dollar," Tambo said.
"Not surprisingly, this new Houdini creation is rapidly becoming worthless. This makes the methodology that I employed to measure inflation during Zimbabwe's hyperinflation episode relevant again. Since Old Mutual's price on the Zimbabwe Stock Exchange is denominated in "New Zim Dollars"/(Bond Notes) and Old Mutual's price on the London Stock Exchange is denominated in British pound sterling, we can create a "New Zim Dollar"/sterling implied exchange rate."
He said this exchange rate can be transformed using PPP to accurately measure Zimbabwe's inflation.
"At present (09/29/17), Zimbabwe's annual inflation rate has soared to 242.72%," he said.
He said under this dollarized regime, Zimbabwe's fiscal authorities could no longer demand that the Reserve Bank of Zimbabwe supply the government with credit (read: print money).
"This hard budget constraint became too onerous for the free spending government to abide by. In consequence, Zimbabwe's government has employed Harry Houdini's magic and circumvented the hard budget constraint imposed by dollarization. It has done so by creating a new fake dollar, which is referred to as the "New Zim Dollar," Tambo said.
"Not surprisingly, this new Houdini creation is rapidly becoming worthless. This makes the methodology that I employed to measure inflation during Zimbabwe's hyperinflation episode relevant again. Since Old Mutual's price on the Zimbabwe Stock Exchange is denominated in "New Zim Dollars"/(Bond Notes) and Old Mutual's price on the London Stock Exchange is denominated in British pound sterling, we can create a "New Zim Dollar"/sterling implied exchange rate."
He said this exchange rate can be transformed using PPP to accurately measure Zimbabwe's inflation.
"At present (09/29/17), Zimbabwe's annual inflation rate has soared to 242.72%," he said.
Source - Byo24News
