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Zimdollar return premature, says Gono

by Staff reporter
07 Aug 2020 at 09:10hrs | Views
FORMER Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono has said the reintroduction of the Zimbabwean dollar, which has been rapidly losing value since its re-introduction in June last year, was premature and it will be near impossible for the market to accept the local unit.

The local currency, which was introduced as the sole legal tender for domestic transactions through Statutory Instrument 142 of 2019, has been in rapid freefall against the greenback.

This has led to runaway inflation which has galloped to more than 700%, decimating pensions and incomes. This has resulted in workers who earn in Zimbabwean dollars becoming increasingly restive as evidenced by the strike by health workers and increasing calls by workers to be paid in foreign currency.

Gono pointed out in an interview this week with this paper that the introduction of the local currency was premature.

"At the risk of undermining my former colleagues at the Ministry of Finance and my successor at the RBZ, which is not my intention at all, I believe that they have chosen the way or direction that this economy ought to take and that's what the economy is taking, but I wish they could have waited a little bit until we had built sufficient reserves to support, like they had said before, three to six months import cover," Gono said.

"There are less painful ways they could have employed to build up those reserves and, hopefully, one day we shall have that debate. Currently, the local unit is taking a real battering akin to my days at the apex bank and there is nothing the authorities can do about a market that has made up its mind to reject a particular currency."

Gono's remarks come at a time President Emmerson Mnangagwa's administration is blaming the rapid decline of the Zimbabwean dollar to illicit activities on the market and unspecified "dark forces".

This has led to the government suspending trading on the Zimbabwe Stock Exchange, which cost the country at least ZW$240 million worth of trading as well as a significant loss of investor confidence. It has also suspended the fungibility of three counters namely Old Mutual, Seed Co and PPC and have placed Econet mobile banking platform EcoCash under investigation. Government insists that the mono currency regime it has introduced remains on course, despite allowing the use of the greenback it had previously banned to be used as a dual currency for domestic transactions.

On growing calls for the government to adopt the South African rand instead of the depreciating local unit, Gono said there is no chance of that happening anytime soon.

"As for adopting the rand, it will not happen. We held those discussions way back in 2005/2006 with current SA Minister of Finance (Tito Mboweni) when he was the SARB (South African Reserve Bank) governor," Gono said.

"There are certain fundamental preconditions that ought to be fulfilled on both sides of the Limpopo River before such an eventuality takes place. Those preconditions were laid out to us very unambiguously and as things stand, we are quite a distance away from the nearest corner that would allow our whispers and loudest voices to be heard."

Soon after his appointment as Finance minister in 2018, Mthuli Ncube revealed that adopting the rand, which he previously recommended in a scientific journal, was a cumbersome process.

"So you have the rand route. But now think about it, trying to join the Rand Monetary Area. How long is that going to take you? How many regulations to comply with? Forty-eight. We removed 12 for you, it's actually 60," he said.

"Join next week, let's see, and then South Africa says, 'but we run this thing, so let's check your budget deficit, ummm 10%, you don't qualify. It should be below 3,5%'. Current account deficit should be below 3%. Reserves, local currency and other things. You should have a local currency before joining. So there are administrative impediments of otherwise doing the right thing or what you may think may be the right thing."

Source - the independent