Principles on new currency in place

Government is working on modalities to introduce a new currency, which will be the sole legal tender for domestic transactions as fundamentals have now been put in place, President Mnangagwa has said.  

In an interview with business media outlet, Bloomberg, on the sidelines of the 12th US-Africa Business Summit in Maputo, Mozambique, on Thursday, the President said "it is necessary that we have our own currency" since it is presently difficult to determine the level of money supply in the economy.

"Then, of course, there is an issue which is critical also for any economy: this is the question of currency. I am not aware of any country which has no currency of its own, but that is not my field - I am a lawyer - but except for Zimbabwe, I haven't been told of another country which doesn't have its own currency. Even poor countries have currencies from what I hear, so we intend to introduce our own," said President Mnangagwa.

The value of the new currency, he added, would be tethered to the country's economic activities and assets. He said the name of the local unit would be inconsequential as long as it meets the set objectives of sustainably growing the local economy.

"The name of the local currency? You know Deng Xiaoping of China? The cat doesn't need to be white or black as long as it catches mice, so the name of the currency to me is not a critical issue; the critical issue is we must have a domestic currency by whatever name.

"We must have a domestic currency so that will be the currency which we will use for transactions in the country. Anybody who has US dollars or a tonne of pounds must go to the bank and change and transact . . . the money supply will relate also to our GDP; it will relate to the volume of assets we have; to development of infrastructure in the country," he said.

According to President Mnangagwa, notwithstanding current headwinds such as drought and power outages currently plaguing the economy, encouraging growth in key economic sectors such as mining and tourism would ably support the envisaged currency.

"And I believe that with the things we are doing in various sectors of the economy — in industry, in tourism, in agriculture and so on and so on — I think that our GDP is going to grow, and I have no doubt that the issue of it being RTGS or not is not critically important.  

"But the fact of the matter will be that, you see, wealth creation is in progress. We are having our volumes in platinum going up on a monthly basis; in diamonds, on a daily basis; in chrome, on a daily basis; in other minerals, on a daily basis. So I don't see any constraint that will again drive us back, unless we change our policies. For now we are focused on reforming our economy so that we become competitive in the world market . . ."

Official Treasury statistics indicate the economy grew by 6 percent last year. Separately, Finance and Economic Development Minister Professor Mthuli Ncube also told the US-based media company that Government has successfully brought both the fiscal deficit and current account deficit under control. This could critically support the new currency, he said, adding that a new currency would likely give tailwinds to the country's economic growth efforts.

"But I think the long-term goal, as His Excellency has said, you cannot develop without your own domestic currency, without the monetary-sector leg in terms of macro management — that is very, very critical . . .  So, in terms of macro fundamentals, actually, maybe we were a bit unlucky, but the fundamentals are in place. So there is no way that issuance of Treasury Bills or fiscal deficits are causing growth in money supply and, therefore, posing risk to currency value.  

"That is not the case. So it's something else that is driving the parallel rate — so many speculators," he said.

There have been fears that the market is likely to heavily discount the new currency once it is introduced because of rising inflation, which peaked to 97,8 percent year-on-year for May. But Treasury believes the rate of inflation has been negative in US dollar terms as the cost of goods and services in hard currency is now relatively cheaper than in the past. However, the rate has been rising in RTGS after decoupling the exchange rate from the greenback.

Professor Ncube said Government has made solid progress in its endeavour to stabilise the economy after reducing its domestic debt and narrowed the current account deficit by sharply reducing imports, particularly of luxury goods.

Token payments are also being made to the African Development Bank (AfDB), the World Bank and the European Investment Bank, among other creditors. Further, the US$3 billion debt owed through the Reserve Bank of Zimbabwe (RBZ)'s overdraft facility has been expunged.  

Prof Ncube said: "We have expunged that. So if you go into that account, it is zero. So what we did first of all, we stopped borrowing money from the overdraft window, and number two, we have securitised that US$3 billion.  

"We have found a smart way of securitising: turned it into long-term bonds of between five years, 10 years, 15 years. It is done. So we solved that problem."

South African Finance Minister Tito Mboweni recently indicated that it would be reasonable and sensible for Harare to begin using its own currency.