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Zimbabwe's new currency greeted with pessimism

by Mthandazo Nyoni
07 Apr 2024 at 10:18hrs | Views
The new currency introduced by the Reserve Bank of Zimbabwe (RBZ) on Friday has been branded old wine in new bottles by economists and financial experts who doubt that it will stand the test of time.

RBZ governor John Mushayavanhu in his first undertaking as the new central bank boss after succeeding John Mangudya this month said the new currency was anchored by a composite basket of foreign currencies and precious metals (mainly gold) held as reserves for this purpose.

But economic experts told The Standard that the currency named Zimbabwe Gold (ZiG) will fail because of a number of reasons that include a large informal sector, lack of confidence, low production, high money supply and lack of political will among other ills.

"I do not think he will be successful," said former Finance minister Tendai Biti.

"He just introduced the ZiG, which envelopes in the sentence of failure from the word go as the structured madness is insanity because.

"How can you introduce a structured currency without adequate reserves?"

"(Mushayavanhu) wants to make a structured currency in an ancient era where no one banks a currency anymore because it does not make money anymore to bank money.

"The people moved from the bullion-based currencies, which happened in the 70s because it is not sustainable.

"The modern currencies are based on trust and confidence and that is the problem with the Zimbabwean currency, there is no confidence in anything local.

"They will change currencies like diapers, but it will not work because people do not have confidence in the currency and Zanu-PF.

"So, John has accepted poison and he is going to fail."

Biti said that any efforts by the new governor to cut on money supply would not be fruitful as he does not have control at the central bank.

Economist Chenayimoyo Mutambasere said: "This is the same trick used by his predecessors, funny money chasing good money and he will make his mark with the next phase of hyperinflation for sure."

Gift Mugano, a professor of economics, said as long as the ZiG is not used exclusively at fuel stations, passports offices and payment of taxes and duties, schools, it will not work.

To allow exclusive use of the new currency in those places will create demand, hence strengthening it.

"Another serious threat to ZiG, which requires special attention is excessive liquidity from the Ministry of Finance going towards payment of contractors and civil servant salaries," he posted on microblogging site X.

While presenting his monetary policy statement, Mushayavanhu declared that the bank will continue to maintain a tight monetary policy stance to ensure sustainability of the monetary anchor to control excessive money printing.

ActionAid Zimbabwe, a global federation, said while the initiative to introduce a new currency may be presented as a solution to Zimbabwe's economic challenges, it believed that what Zimbabweans truly need is the restoration of confidence in the economy, not the introduction of yet another currency.

"For years, Zimbabwe has grappled with the consequences of currency instability. We have witnessed the introduction of various currencies, each accompanied by promises of economic recovery.

"However, the reality on the ground has often fallen short of these promises, leaving Zimbabweans vulnerable to economic uncertainty and hardship," it said in a statement.

"The introduction of the ZiG currency risks repeating the mistakes of the past.

"Instead of addressing the root causes of our economic challenges, it offers a temporary fix that fails to inspire confidence among Zimbabweans.

"We believe that true economic recovery can only be achieved through comprehensive reforms that address issues such as corruption, mismanagement, and lack of transparency."

The organisation called on the government to prioritise measures that would rebuild trust in the economy.

This includes fostering an environment that is conducive to investment, promoting accountability and good governance, and prioritizing the needs of ordinary Zimbabweans.

"We urge policymakers to engage in meaningful dialogue with stakeholders from all sectors of society to develop sustainable solutions that will benefit the entire nation," it said.

"We will continue to monitor developments related to the ZiG currency and will work tirelessly to ensure that the voices of ordinary Zimbabweans are heard, and their concerns addressed," the statement reads in part.

"We reiterate that what Zimbabweans need is not just a new currency, but a fundamental shift towards a more inclusive and equitable economy.

"Only through genuine reform and commitment to the well-being of all citizens can we truly build a prosperous future for Zimbabwe."

However, economist Prosper Chitambara expressed optimism that the new currency will succeed.

"Well, the new monetary policy has introduced several positive monetary policy measures, namely the adoption of a market-determined exchange rate system," Chitambara said.

"I think this is also in line with recommendations from international partners, such as the International Monetary Fund.

"So, I think that's an important development. Themarket to play a greater role in terms of determining the exchange rate.

"Market dynamic forces of demand and supply must have greater sway in terms of foreign exchange rate determination that also helps to boost confidence in the whole foreign exchange management system."

He also noted that the reduction of the bank policy rates is another positive move that will reduce the cost of borrowing for businesses.

"The central bank has also recalibrated and reduced the bank policy rate from a high of 130% per annum to 20% per annum.

"That's also a positive development in that it will reduce the cost of borrowing money, and the cost of accessing credit, which should boost several businesses.

"There are also alleviating bank charges. I think that's also a positive development, which should help to support formal financial sector intermediation."

Chitambara said the introduction of a new currency was a bold move that needed the governor to limit the government's access to statutory credit for it to be sustainable.

"But the most important highlight is the introduction of the new currency, the so-called structured currency, the ZiG, which is effectively replacing the Zimbabwe dollar," he said.

"That's an important development.

"The sustainability of this new currency obviously will be a function or will be determined by several factors, which include the strict adherence by the central government to statutory limits in terms of access to credit by the government," he said.

He added: "Also ensuring that the quantum of the reserve money is to be fully baked by the equivalent gold and foreign exchange reserves.

"I think there will also be the need for greater transparency in that respect, especially around the quantum of the reserve that we saw during the handover, how the central bank opened up its vaults to the public.

"I think that's an important confidence-boosting measure. But there's a need for periodic updates."

He urged the reserve bank to have quarterly reports in terms of how much reserves the nation has.

He said this would go a long way in terms of ensuring confidence in the new currency.

Source - The Standard