Opinion / Columnist
Chinamasa deserves Nobel Prize in economics
11 Aug 2015 at 03:32hrs | Views
IN its post-colonial history since 1980, Zimbabwe has gotten one big thing right, inter alia: the multi-currency system.
To cut a long a long story short, Zimbabwe currently has arguably, the lowest inflation rate in the world at, minus 2.65 percent.
Some may argue and allege that this is indicative of deflation, but the hard fact is that in a multi-currency economy that is a hard sell because the negative inflation is merely a function of exchange rates that are benefiting the Zimbabwean consumers in a big way.
For starters, Zimbabweans purchase their goods mostly in South Africa using a depreciating currency like the rand.
The benefits that accrue from the exchange rate gains between the United States dollar and the rand are then passed on to the Zimbabwean consumers in the form of lower prices for goods and services. Consequently, the negative inflation Zimbabwean consumers are currently enjoying is merely a positive feedback loop arising from the favourable exchange rates that are skewed in their favour.
People must not forget that if the pendulum swings adversely against the US dollar (i.e. when the rand begins to appreciate) it is the very Zimbabwean consumers that will be prejudiced by such a twist of events and they will begin to experience rising inflation thereby negatively impacting on their livelihoods.
Against the backdrop of the foregoing, one needs to highlight the fact that Zimbabwean shops have never been so full.
Not even during the UDI (Unilateral Declaration of Independence) opprobrium. Again cynics and pessimists can argue and say that the shops are full of imported goods. What such cynics need to understand is that imports are a feature of modern economies from Europe to the US.
Until the production scales are levelled and equalised, whether we like it or not imports are here to stay and cannot be attributed to anyone since there are a global phenomenon that all countries are grappling with.
Long and treacherous queues that used to characterise the Zimbabwean economic landscape are gone.
Transport woes that used to dog commuters during the ESAP days are fading from people's memories. They remain only as a nostalgic relic of the past.
Grade one pupils who were born post-2009 (formal implementation of the multi-currency system) have always known transport costs from their suburbs to the city centre to be R5 since they landed on this wretched earth.
That is a classic illustration of the stability of prices within the Zimbabwean economy.
To cap it all, the brave and valiant Finance Minister, Patrick Chinamasa, in his 2014 national budget speech pronounced the effective and final demonetisation of the Zimbabwean dollar, which process has been rubber-stamped by the equally capable Reserve Bank of Zimbabwe governor John Mangudya who has just announced the actual logistics pertaining to the demonetisation process.
It is worth mentioning that Minister Chinamasa is the very individual who formally introduced the multi-currency system in Zimbabwe for the first time ever when he was acting finance minister in 2009.
Consequently, it goes without saying that the whole multi-currency system is his legacy.
Moreover, it has to be highlighted that due to the meticulous implementation of the multi-currency system, the lowest inflation rate in the world, of minus 2.65 percent, has been achieved notwithstanding the presence of economic sanctions against the country.
On the issue of sanctions there is the perennial debate that Zimbabwe is not under sanctions, only individuals or certain organisations are the ones under some alleged targeted sanctions.
Such an argument is not worth the paper it is written on. First a cursory look at the list of countries under US sanctions reveals that Zimbabwe is within that list (not individuals). The fact that the sanctions are targeted at certain personalities is provided as a footnote in fine print which no-one has time to read.
Speak to anyone who has ever sat on any major international bank's credit committee and a proposal to extend a loan to Zimbabwe has surfaced and that person will tell you that all software out there that lists countries under sanctions have Zimbabwe among sanctioned countries (not individuals).
Consequently, Zimbabwe tends to lose any possible loan on the grounds that it is sanctioned. Those who want to argue this point can argue until the end of time but that is a hard and incontrovertible fact.
Arising from the above, re-assurances of the continued utilisation of the multi-currency system in Zimbabwe are stabilising the fragile financial markets.
To show that the multi-currency system is here to stay, the RBZ governor went a step further and added new currencies into the currency mix (the Chinese Renminbi, the Indian rupee and the Japanese yen, inter alia).
What it means is that Zimbabweans are now given a near knave-proof hedging strategy to protect themselves against any adverse currency movements within the financial markets both domestic and international.
A simple example will illustrate the point: consider a person who has US dollars in his pocket and orders goods for his business from South Africa.
He/she sells his stock in US dollars in Zimbabwe, earning US dollars of course.
Now, when it is time to order the stock, he/she orders in South African rand which is cheaper to buy using US dollars.
By way of an example, whereas prior to the depreciation of the rand from US$1=R8 to US$=R12 (as is now the case), a mere exchange of US$1 million at a bureau de change would have given one R8 million previously, currently, the same US$1 million now gives one R12 million.
That gives rise to an exchange rate gain of R4 million. That is good money by any stretch of the imagination. It is worth mentioning that most goods in rand terms in South Africa would have remained fairly at the same price given South Africa's inflation rate as they were when the exchange rate was US$1=R8 (except, of course, those that are sensitive to currency movements like fuel).
The lesson from the above illustrates the fact that Zimbabweans can play around with currencies, switching from depreciating currencies to stronger ones with relative ease. The above scenario can be replicated to other currencies as well.
Consequently, Zimbabweans should not have currency related problems because they can switch from currency to currency without having to suffer exchange control or foreign exchange restrictions.
This is the freedom of currency choice at its best. This is ultra-capitalism. Even the ultra-capitalist economies of the West never reached these levels of currency freedom.
It is noteworthy that Europe, which is alleged to be the epicentre of capitalism, is stuck with a single currency, the euro, which is ironically giving the Eurozone member states fatal kicks of the proverbial dying horse.
The ongoing Greek tragic-comedy and its Grexit (Greek exit from the Euro) threat underscores the perils of sticking to one currency. Add to that the ongoing British anti-Euro rhetoric.
Against the backdrop of the foregoing therefore, if the Swedish Nobel prize committee is not biased or fixated with Europe and the US, then the Zimbabwean Finance Minister Chinamasa deserves to be given the award this year.
Why 2014? It is now about seven years since he introduced the multi-currency system in February 2009 and the system has helped to turn Zimbabwe's economy around.
Lowest global inflation, no foreign exchange controls, price stability has been attained, availability (albeit still not enough) of foreign exchange in the economy, economic and social strife have been eliminated, among numerous other related gains.
It has to be argued here that Minister Chinamasa was the first person in the world to formally introduce a multicurrency system and that this had the corollary effect of reducing the country's hyperinflation from its officially reported peak of 500 billion percent down to the current minus 2.65 percent, and, that stability has been sustained. That is a feat that even the greatest economists in the world would battle to fathom. This is reason enough why the Nobel committee in Sweden must look very closely at this particular achievement and put prejudice aside. Other nations have dollarised before either formally or informally but none has used the multi-currency system. It is only F Von Hayek in the late 1970s who argued for the denationalisation of currencies in Europe but his idea was shot down as the Europe went on to implement a single currency instead.
So it took Chinamasa to take the whole multi-currency hypothesis and implement it in practical terms as is obtaining in Zimbabwe right now. So in the absence of prejudice and the jaundiced view of Africa in general and Zimbabwe in particular, Chinamasa deserves the 2015 Nobel Prize in economics.
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Colls Ndlovu is an independent financial analyst and financial risk consultant
To cut a long a long story short, Zimbabwe currently has arguably, the lowest inflation rate in the world at, minus 2.65 percent.
Some may argue and allege that this is indicative of deflation, but the hard fact is that in a multi-currency economy that is a hard sell because the negative inflation is merely a function of exchange rates that are benefiting the Zimbabwean consumers in a big way.
For starters, Zimbabweans purchase their goods mostly in South Africa using a depreciating currency like the rand.
The benefits that accrue from the exchange rate gains between the United States dollar and the rand are then passed on to the Zimbabwean consumers in the form of lower prices for goods and services. Consequently, the negative inflation Zimbabwean consumers are currently enjoying is merely a positive feedback loop arising from the favourable exchange rates that are skewed in their favour.
People must not forget that if the pendulum swings adversely against the US dollar (i.e. when the rand begins to appreciate) it is the very Zimbabwean consumers that will be prejudiced by such a twist of events and they will begin to experience rising inflation thereby negatively impacting on their livelihoods.
Against the backdrop of the foregoing, one needs to highlight the fact that Zimbabwean shops have never been so full.
Not even during the UDI (Unilateral Declaration of Independence) opprobrium. Again cynics and pessimists can argue and say that the shops are full of imported goods. What such cynics need to understand is that imports are a feature of modern economies from Europe to the US.
Until the production scales are levelled and equalised, whether we like it or not imports are here to stay and cannot be attributed to anyone since there are a global phenomenon that all countries are grappling with.
Long and treacherous queues that used to characterise the Zimbabwean economic landscape are gone.
Transport woes that used to dog commuters during the ESAP days are fading from people's memories. They remain only as a nostalgic relic of the past.
Grade one pupils who were born post-2009 (formal implementation of the multi-currency system) have always known transport costs from their suburbs to the city centre to be R5 since they landed on this wretched earth.
That is a classic illustration of the stability of prices within the Zimbabwean economy.
To cap it all, the brave and valiant Finance Minister, Patrick Chinamasa, in his 2014 national budget speech pronounced the effective and final demonetisation of the Zimbabwean dollar, which process has been rubber-stamped by the equally capable Reserve Bank of Zimbabwe governor John Mangudya who has just announced the actual logistics pertaining to the demonetisation process.
It is worth mentioning that Minister Chinamasa is the very individual who formally introduced the multi-currency system in Zimbabwe for the first time ever when he was acting finance minister in 2009.
Consequently, it goes without saying that the whole multi-currency system is his legacy.
Moreover, it has to be highlighted that due to the meticulous implementation of the multi-currency system, the lowest inflation rate in the world, of minus 2.65 percent, has been achieved notwithstanding the presence of economic sanctions against the country.
On the issue of sanctions there is the perennial debate that Zimbabwe is not under sanctions, only individuals or certain organisations are the ones under some alleged targeted sanctions.
Such an argument is not worth the paper it is written on. First a cursory look at the list of countries under US sanctions reveals that Zimbabwe is within that list (not individuals). The fact that the sanctions are targeted at certain personalities is provided as a footnote in fine print which no-one has time to read.
Speak to anyone who has ever sat on any major international bank's credit committee and a proposal to extend a loan to Zimbabwe has surfaced and that person will tell you that all software out there that lists countries under sanctions have Zimbabwe among sanctioned countries (not individuals).
Consequently, Zimbabwe tends to lose any possible loan on the grounds that it is sanctioned. Those who want to argue this point can argue until the end of time but that is a hard and incontrovertible fact.
Arising from the above, re-assurances of the continued utilisation of the multi-currency system in Zimbabwe are stabilising the fragile financial markets.
To show that the multi-currency system is here to stay, the RBZ governor went a step further and added new currencies into the currency mix (the Chinese Renminbi, the Indian rupee and the Japanese yen, inter alia).
What it means is that Zimbabweans are now given a near knave-proof hedging strategy to protect themselves against any adverse currency movements within the financial markets both domestic and international.
A simple example will illustrate the point: consider a person who has US dollars in his pocket and orders goods for his business from South Africa.
He/she sells his stock in US dollars in Zimbabwe, earning US dollars of course.
Now, when it is time to order the stock, he/she orders in South African rand which is cheaper to buy using US dollars.
By way of an example, whereas prior to the depreciation of the rand from US$1=R8 to US$=R12 (as is now the case), a mere exchange of US$1 million at a bureau de change would have given one R8 million previously, currently, the same US$1 million now gives one R12 million.
That gives rise to an exchange rate gain of R4 million. That is good money by any stretch of the imagination. It is worth mentioning that most goods in rand terms in South Africa would have remained fairly at the same price given South Africa's inflation rate as they were when the exchange rate was US$1=R8 (except, of course, those that are sensitive to currency movements like fuel).
The lesson from the above illustrates the fact that Zimbabweans can play around with currencies, switching from depreciating currencies to stronger ones with relative ease. The above scenario can be replicated to other currencies as well.
Consequently, Zimbabweans should not have currency related problems because they can switch from currency to currency without having to suffer exchange control or foreign exchange restrictions.
This is the freedom of currency choice at its best. This is ultra-capitalism. Even the ultra-capitalist economies of the West never reached these levels of currency freedom.
It is noteworthy that Europe, which is alleged to be the epicentre of capitalism, is stuck with a single currency, the euro, which is ironically giving the Eurozone member states fatal kicks of the proverbial dying horse.
The ongoing Greek tragic-comedy and its Grexit (Greek exit from the Euro) threat underscores the perils of sticking to one currency. Add to that the ongoing British anti-Euro rhetoric.
Against the backdrop of the foregoing therefore, if the Swedish Nobel prize committee is not biased or fixated with Europe and the US, then the Zimbabwean Finance Minister Chinamasa deserves to be given the award this year.
Why 2014? It is now about seven years since he introduced the multi-currency system in February 2009 and the system has helped to turn Zimbabwe's economy around.
Lowest global inflation, no foreign exchange controls, price stability has been attained, availability (albeit still not enough) of foreign exchange in the economy, economic and social strife have been eliminated, among numerous other related gains.
It has to be argued here that Minister Chinamasa was the first person in the world to formally introduce a multicurrency system and that this had the corollary effect of reducing the country's hyperinflation from its officially reported peak of 500 billion percent down to the current minus 2.65 percent, and, that stability has been sustained. That is a feat that even the greatest economists in the world would battle to fathom. This is reason enough why the Nobel committee in Sweden must look very closely at this particular achievement and put prejudice aside. Other nations have dollarised before either formally or informally but none has used the multi-currency system. It is only F Von Hayek in the late 1970s who argued for the denationalisation of currencies in Europe but his idea was shot down as the Europe went on to implement a single currency instead.
So it took Chinamasa to take the whole multi-currency hypothesis and implement it in practical terms as is obtaining in Zimbabwe right now. So in the absence of prejudice and the jaundiced view of Africa in general and Zimbabwe in particular, Chinamasa deserves the 2015 Nobel Prize in economics.
----------
Colls Ndlovu is an independent financial analyst and financial risk consultant
Source - Colls Ndlovu
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