News / National
Re-introducing the Zimdollar will be economic suicide
04 Sep 2017 at 06:54hrs | Views
THE adoption of bond notes as official currency would worsen the parallel market, thereby, quickening inflation, analysts have warned.
Last week, government's top adviser on ease of doing business reforms, Ashok Chakravarti recommended that bond notes operate as the official local currency and not as a surrogate of the United States dollar.
Labour and Economic Development Research Institute of Zimbabwe economist, Prosper Chitambara, said addressing the fundamentals of production was a prerequisite to officialising bond notes.
"If you do that [officialise bond notes] you will be re-introducing the Zimdollar alongside other currencies. That will create inflationary problems, it will create parallel market. Of cause it is there [parallel market] but it [officialising bond notes]) will worsen the situation," he said.
"When we do that without addressing the fundamentals issues they will be variance on the market valuation of bond notes and US dollar. The most important thing is that as long as we are not addressing the fundamentals of productivity, officialising the bond notes will be inflationary and worsen the problem of parallel market."
The introduction of bond notes in November last year has seen the surrogate currency trading at a 30% premium with the dollar, a situation which has bred a three-tier pricing system, one for bond notes, the United States dollar and plastic money. This comes despite monetary authorities' insistence that the bond notes are at par with the dollar.
Economist, Clemence Machadu weighed in saying confidence in bond notes, was affected by the failure to set up an independent board to monitor the currency.
"One thing that affected confidence in bond notes is that some of the fundamental conditions underpinning their introduction were not implemented. Take the issue of the independent bond notes committee for instance, it was never put in place and this obviously affects transparency. So, the introduction of a local currency, while it makes economic sense, will also need to be done in a transparent way, to ensure that the currency is accepted by the generality of the populace," he said.
Machadu said Zimbabwe required a weaker currency that can encourage exports and provide the central bank with monetary policy flexibility, as it will be able to release more tools to manage the economy.
"Depegging bond notes will also deal with the parallel market, as the true value of the currency will be determined by market forces. My suggestion is that the central bank depegs bond notes and then utilise the $500 million currently backing the surrogate currency to purchase gold that will be used to back the new currency. Under that arrangement, about $2 billion worth of new currency can then be printed under the careful supervision of an independent board," he said.
Last week, government's top adviser on ease of doing business reforms, Ashok Chakravarti recommended that bond notes operate as the official local currency and not as a surrogate of the United States dollar.
Labour and Economic Development Research Institute of Zimbabwe economist, Prosper Chitambara, said addressing the fundamentals of production was a prerequisite to officialising bond notes.
"If you do that [officialise bond notes] you will be re-introducing the Zimdollar alongside other currencies. That will create inflationary problems, it will create parallel market. Of cause it is there [parallel market] but it [officialising bond notes]) will worsen the situation," he said.
"When we do that without addressing the fundamentals issues they will be variance on the market valuation of bond notes and US dollar. The most important thing is that as long as we are not addressing the fundamentals of productivity, officialising the bond notes will be inflationary and worsen the problem of parallel market."
Economist, Clemence Machadu weighed in saying confidence in bond notes, was affected by the failure to set up an independent board to monitor the currency.
"One thing that affected confidence in bond notes is that some of the fundamental conditions underpinning their introduction were not implemented. Take the issue of the independent bond notes committee for instance, it was never put in place and this obviously affects transparency. So, the introduction of a local currency, while it makes economic sense, will also need to be done in a transparent way, to ensure that the currency is accepted by the generality of the populace," he said.
Machadu said Zimbabwe required a weaker currency that can encourage exports and provide the central bank with monetary policy flexibility, as it will be able to release more tools to manage the economy.
"Depegging bond notes will also deal with the parallel market, as the true value of the currency will be determined by market forces. My suggestion is that the central bank depegs bond notes and then utilise the $500 million currently backing the surrogate currency to purchase gold that will be used to back the new currency. Under that arrangement, about $2 billion worth of new currency can then be printed under the careful supervision of an independent board," he said.
Source - newsday
