Opinion / Columnist
Zimbabwe dollar return a scare
20 Apr 2016 at 08:13hrs | Views
There is a plethora of long term investments being sold to Zimbabweans including but not limited to pension funds, funeral, retirement, endowment, education and wealth funds. The future of these long term investments is a cause of a lot of discomfort and palpitation due to the prospect of a currency reform or return of the dreaded Zimbabwe Dollar. The fear reign supreme if the investments are not asset linked or publicly traded equities.
The investment discomfort could well extend to medical aid benefits, bank deposits, loans, social security funds and other short savings.
There is this mantra that the local currency will not make a comeback "soon". The word "soon" is the millstone. The impute of the word is that it's not now that currency reform is envisaged but some day in the future. This scares a lot of long term investors as long term funds often span decades and the "soon" is pragmatically within the time frame of those investments.
People would want the comfort of knowing what will be of their investments in a future which has prospect of a currency reform. There is also need to comprehend the change mechanism. The change mechanism should be part of the investment contracts that people enter with fund managers, bankers, life assurance companies and funeral assurance companies amongst many other merchants of long term financial products.
It seems most of these aforementioned institutions have no clue on matters relating to change mechanisms. For instance, they do not know whether or not they shall be allowed to have a dichotomous change over whereof they will keep the dollar denominated products as at change date. They are also not aware if the government will allow a parallel system of currency. It's not also clear on whether a market driven exchange process will be implemented. People could as well be investing our energy on just thin air.
It is imperative that there is a currency reform strategy even if the same is a 10 or even 20 year strategic plan to calm investment nerves. Ideally the strategy will then inform national policy on parameters to be met or required to adopt own or any other currency.
The currency strategy and policy should then inform fund managers on coining policies that we can bank our future on. Certainty is not possible in any investment especially long term products but a high degree of risk on these products kills the investment or savings drive.
In Zimbabwe people haven't forgotten the RBZ driven currency raids, loss of their investments through practice of casino economics that spurred hyperinflation and the subsequent dollarization that wiped most long term investments. A probability of near one is an imperative in this economy.
The pain of people having lost almost entirely their lifelong savings is not one that can forget easily. The uncertainty is driving most wealthy Zimbabweans to shun local savings and investments preferring South Africa, Botswana, Maritius and other off shore destinations. This causes liquidity challenges.
The importation of US$200 million cash may be an act of investing in a leaking bucket. The money will still find itself invested back outside Zimbabwe where the only prevalent risks are possibly just market risk, mortality and inflation risk which in most economies be estimated with a high confidence level
The Zimbabwean long term scenario is high on default risk. The pain that most Zimbabweans faced on the demise of the Zimbabwe dollar is still an open wound. There is still fear that a return of local currency in whatever form may be another pain. They see currency reform as not within the short term lenses but as inevitable in the near future. And their future is often defined by their long term funds The fear of a currency reform is also driven by what ordinary Zimbabweans also see as the downside of dollarization. By scrapping the Zimbabwe dollar the country no longer has ability to use some monetary instruments to spur economic growth and this in an albatross on the neck of the Zimbabwe economy.
The dollar in as much as has stabilized inflation pressure it has caused a new set of economic challenges including making Zimbabwe a supermarket economy, liquidity constraints, increased imports resulting in collapsing industries, trade deficits and an expected low economic growth.
The dollar economy challenges are not exactly sustainable. It will be historical for a country with one of the weakest economies to use one of the strongest currencies. The country has lost its competitiveness with regional peers and somehow it has to abandon the US dollar "not so soon" but "soon enough".
Let the country draft currency reform strategy and policy to ease the nerves of investors even if the policy is that the country will never go back to its own currency.
Brian Sedze is the Chairman of Africa Innovation Hub and President of Free Enterprise Initiative. He can be contacted on brian.sedze@gmail.com
The investment discomfort could well extend to medical aid benefits, bank deposits, loans, social security funds and other short savings.
There is this mantra that the local currency will not make a comeback "soon". The word "soon" is the millstone. The impute of the word is that it's not now that currency reform is envisaged but some day in the future. This scares a lot of long term investors as long term funds often span decades and the "soon" is pragmatically within the time frame of those investments.
People would want the comfort of knowing what will be of their investments in a future which has prospect of a currency reform. There is also need to comprehend the change mechanism. The change mechanism should be part of the investment contracts that people enter with fund managers, bankers, life assurance companies and funeral assurance companies amongst many other merchants of long term financial products.
It seems most of these aforementioned institutions have no clue on matters relating to change mechanisms. For instance, they do not know whether or not they shall be allowed to have a dichotomous change over whereof they will keep the dollar denominated products as at change date. They are also not aware if the government will allow a parallel system of currency. It's not also clear on whether a market driven exchange process will be implemented. People could as well be investing our energy on just thin air.
It is imperative that there is a currency reform strategy even if the same is a 10 or even 20 year strategic plan to calm investment nerves. Ideally the strategy will then inform national policy on parameters to be met or required to adopt own or any other currency.
The currency strategy and policy should then inform fund managers on coining policies that we can bank our future on. Certainty is not possible in any investment especially long term products but a high degree of risk on these products kills the investment or savings drive.
In Zimbabwe people haven't forgotten the RBZ driven currency raids, loss of their investments through practice of casino economics that spurred hyperinflation and the subsequent dollarization that wiped most long term investments. A probability of near one is an imperative in this economy.
The pain of people having lost almost entirely their lifelong savings is not one that can forget easily. The uncertainty is driving most wealthy Zimbabweans to shun local savings and investments preferring South Africa, Botswana, Maritius and other off shore destinations. This causes liquidity challenges.
The importation of US$200 million cash may be an act of investing in a leaking bucket. The money will still find itself invested back outside Zimbabwe where the only prevalent risks are possibly just market risk, mortality and inflation risk which in most economies be estimated with a high confidence level
The Zimbabwean long term scenario is high on default risk. The pain that most Zimbabweans faced on the demise of the Zimbabwe dollar is still an open wound. There is still fear that a return of local currency in whatever form may be another pain. They see currency reform as not within the short term lenses but as inevitable in the near future. And their future is often defined by their long term funds The fear of a currency reform is also driven by what ordinary Zimbabweans also see as the downside of dollarization. By scrapping the Zimbabwe dollar the country no longer has ability to use some monetary instruments to spur economic growth and this in an albatross on the neck of the Zimbabwe economy.
The dollar in as much as has stabilized inflation pressure it has caused a new set of economic challenges including making Zimbabwe a supermarket economy, liquidity constraints, increased imports resulting in collapsing industries, trade deficits and an expected low economic growth.
The dollar economy challenges are not exactly sustainable. It will be historical for a country with one of the weakest economies to use one of the strongest currencies. The country has lost its competitiveness with regional peers and somehow it has to abandon the US dollar "not so soon" but "soon enough".
Let the country draft currency reform strategy and policy to ease the nerves of investors even if the policy is that the country will never go back to its own currency.
Brian Sedze is the Chairman of Africa Innovation Hub and President of Free Enterprise Initiative. He can be contacted on brian.sedze@gmail.com
Source - Brian Sedze
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