Case for return of Zimdollar

In year 2014, I wrote an article explaining why the government should bring back our own local currency, and I was bashed by all and sundry. I am expecting the same reaction in response to this article. Many Zimbabweans do not want to hear about anything called Zimdollar (Z$) because of what it did to their life savings between 2000 and 2009. Before I get in the details of my view point, it is very important for all of us to note that:

It is not possible to work in Zimbabwe and get a salary denominated in the currency of another country. Whoever introduced dollarisation in 2009 fooled Zimbabweans into believing that they could sell tomatoes in Mbare and sustainably get paid for that produce in foreign currency. It is simply not possible or sustainable. This applies to the use of both rand and United States dollar (U$) or any other currency.

I have heard the argument that the Z$ should only be introduced when the economy has stabilised and there is sustainable production. This explanation is flawed, because production will never improve unless there is a medium of exchange. It's more of a chicken and egg situation. The country will never have sustainable Gross Domestic Product (GDP) growth or foreign currency generation without its own currency.

 I will not waste my time commenting on why Zimbabwe should not adopt the South Africa rand. Even those who are not financially literate know that by so doing, the country will import all South African problems, including their land reform programme. Do we want the impact of another land reform in Zimbabwe? If so, then adopt the rand. Zimbabweans should "smell the coffee" as the Governor of the Reserve Bank of Zimbabwe (RBZ) John Mangudya once said.

The disaster we are in

The Zimbabwean economy is facing serious problems, most of which are related to the instability of the local currency, shortage of cash as well as confusion as to the value of goods and services. Are our financial statements denominated in US$ or real time gross settlement (RTGS) local money or bond local money. This confusion has created the following problems;-

Unjustified enrichment

As was the case between 2000 and 2009, those who have access to forex at the official rate are being enriched in an unjustified manner. In addition, due to shortage of bond notes, those who have access to bond notes are being unjustifiably enriched.

While the RBZ is talking of a priority list, those businesses which get priority in accessing forex, but with products whose prices are not controlled by government, are currently pricing their products on the basis of the prevailing parallel market, hence making abnormally high profit margins. Furthermore, good accountants when pricing their products will have to forward prices on the basis of the likely exchange rate by the time they place orders to replace stock.

This situation of cash shortages has also created a group of lazy people who do not work, but just spend the day making margins out of the little that those who are working are making. Those who are working are begging for cash from those who are not working.

Misstatement of financial statements

Are the financial statements for corporates in Zimbabwe denominated in US$, Z$, bond or whatever currency? Am I not correct to say all financial statements, audited or unaudited, are misstated? I can assure you that the various exchange rates currently prevailing in the market are never going to converge unless some US$ were going to drop from heaven and facilitate the RBZ to match our RTGS, bond money supply with real US$. If government borrows to facilitate such matching, the tax paper will have to pay the cost. A day is going to come when balance sheets of companies will be written down to the real and actual US$ values. The Institute of Chartered Accountants may need to brace for accounting challenges one day. Alternatively, a day is going to come when everyone is advised that what the balance sheet was reflecting as US$ is actually Z$. While this will not create problems for local firms, there will be a major problem for companies operating in Zimbabwe, which are subsidiaries of foreign companies which have been consolidating these financial statements on the basis of an exchange rate of 1:1.

Pricing, valuation and contract values

Prices for all assets in Zimbabwe are currently overstated to reflect the parallel market rates as well as expected forward exchange rate.

For example, if you sign an agreement to buy a house for $500k today, pay for it over the next two years, yet you know that in terms of the real US$, the price of that house is US$200k, which price is enforceable if a new currency is introduced tomorrow or the government manages to normalise financial markets by elimination of the parallel market? Will you be forced to settle the inflated US$500k? I do have an example of a property which was priced at $300k in 2013, which is now valued at close to $1m. Those of you in diaspora WhatsApp groups should have followed discussions around Steward Bank and CABS housing loans for Zimbabweans in the diaspora. Many concluded that if they were to be forced to pay in hard US$, they will lose out and I can assure you that the uptake for such loans may not be that good. Only those who lack financial knowledge or have no other way of buying a house in Zimbabwe outside of such loans will accept such loans and their terms.

How are our products valued or priced? We are in a crisis and many are set to lose out in a big way. Most are likely to overpay for overpriced assets. Expect court cases of some sellers and buyers fighting over whether payment should be settled in US$ or some other confused currency.

Tourism

Recently, I attempted to assist a European tourist rent a car in Zimbabwe, I faced real challenges. The tourist was arguing that the prices were inflated and I took my time trying to explain that while the statement on the quotation is indicating that it's US$, the real value was RTGS, whose value is not the same as US$. Some tourists are now hiring cars from South Africa instead of Zimbabwe for the reason that it is too expensive to do it from Zimbabwe. The loss to the country is foreign currency. What should have been spent in Zimbabwe is now being spent in South Africa. How do tourists buy in our shops? Should they use their cards and get fleeced out? Buying an RTGS-priced stock item using real US$? They are not fools, but rational spenders. They will risk being cheated and change their money either to bonds or RTGS.

This brings in a number of inefficiencies and increases the risk of being duped.

Investment

Should we expect a foreign investor to bring in his investment in US$ and for accounting purposes it is recorded at values of RTGS, bond or what? The exchange rate gap between the parallel market and the official rate is one of the main reasons why foreign direct investment (FDI) may not flow immediately into the country.

What needs to be done?- No rocket science

Our problems do not require a rocket scientist or a professor to resolve. We simply need to go back to the basics and do what each and every other country is doing.

All foreign currency should be locked at the RBZ and banks

I do advocate for all our foreign currency to go back to the RBZ and commercial banks. Exporters should be allowed to keep and utilise their forex, while the RBZ keeps some reserves that it uses to influence exchange rate. This will assist in curtailing abuse of forex as well as incentivising corporates and individuals to export. Exporters and those with access to foreign currency earnings should be allowed to open foreign currency accounts (FCA) as was the case during our normal banking days. This will help resolve two major problems; (1) Zimbabweans will stop saving their money in foreign countries (2) Those keeping cash in US$ will bank their money as a way of reducing the risk associated with keeping cash at home. (3) Zimbabweans in the diaspora may also be able to save their money in Zimbabwe.

RBZ to revert to lender of last resort

The RBZ is being accused of being the driving power behind the growth of money supply which is currently chasing the few US$ in the market. How much has the RBZ injected in the market through treasury bills (TBs)? Direct or indirect loans? The RBZ should revert to its responsibility of being lender of last resort to commercial banks. Such loans for overnight accommodation used to be secured by TBs or other government papers.

Secondly, the RBZ and government should be able to manipulate the exchange rate, whether parallel or official, through the use of both monetary and fiscal policy. Currently, it doesn't look like the monetary policy intervention is being effectively used. The parallel market keeps going up unchallenged and someone in government office is just hoping that prices in shops will remain stable.

Immediately introduce local currency

I have heard arguments such as that the local currency will be introduced when there is sufficient production and foreign currency to back it up. The correct position is that Zimbabwe will never have sufficient production and foreign currency in its vaults until it has its own currency.

While I agree that we need forex to back local currency, the basic definition of money is that it is a medium of exchange. For example, Mr A has a house which he wants to sell and buy a car. Mr B has a car which he wants to sell and buy a house. Instead of them swapping a car and a house, they just need a paper which we now call money to swap the assets. This paper is used to manage many problems, including the change arising as a result of the difference between the value of a house and value of a car. The value of this currency is coming from the car and the house. Zimbabwe has a stock of assets such as cars, houses, clothes and raw materials which they need to exchange, and all they need is a medium of exchange which can be properly managed. The value of that currency will be backed by the stock of assets which include cars and houses, among others, which may have accumulated over a period of more than 100 years.

An independent monetary policy committee will need to be established just as what other banks do to manage the increase and decrease of money supply. In other words, monetary policy needs proper management.

It is correct that forex is also needed to stabilise our currency, but it is possible to stabilise our currency using the little foreign currency which the country currently has. If the biggest economy in the world the US failed to back its own money with either foreign currency or gold, Zimbabwe should stop dreaming by thinking that it can do it.

Additionally, the RBZ and government are just in denial. Zimbabwe already has its own currencies called RTGS and bond dollars which only need to be formalised and regulated through the use of an effective monetary policy.

Stabilisation of foreign currency

Tough and painful decisions need to be made now because no such decisions will be made two years or so before elections in 2023. For example, if it is true that we spend more than US$200m on DSTV subscriptions annually, which translates to US$1 billion in five years, something has to be done to curtail this. This includes convincing Multichoice to invest some of this money in Zimbabwe rather than remitting to it to South Africa. What about Kwese? Isn't their money being invested in the respective countries it operates in? Well done Strive Masiyiwa for giving us a choice. Motor vehicle imports should be curtailed. We import 20-year-old cars which are fuel inefficient and cause too many accidents on our roads. Import bill for spare parts and fuel go up due to this. A bold decision should be made to stop most of these imports. Why not even limit this to five-year-old vehicles? We have also destroyed our own market for second hand vehicles through such imports. Facilitate bank car loans by registering financial interest on registration books, as is the case in Botswana and South Africa. This will ensure that a car which has not been fully paid for does not cross the border or sold without the bank being advised or consenting to it. Such a move will incentivise banks to give car loans. This will allow customers to have access to more reliable and durable cars. Social benefits include reduction in accidents and reduction in fuel import bills. It is my plan to write an article on vehicle policy if I get time. How much forex will we save over the next five years by curtailing these imports? People will scream and cry, but will be happier when the economy is stabilised.

How much foreign currency is Malawi generating? What about Rwanda, Zambia and other countries? How much is that little forex supporting in terms of GDP in their respective countries? How are they managing to stabilise their currencies? Extrapolate and calculate how much our forex can support in terms of GDP and why is that not being done? A stable currency can be introduced and managed in Zimbabwe. Assuming that the current fair rate between our RTGS$ money and US$ is US$1:RTGS$2. What makes us fail to implement proper monetary policies to stabilise it where it is now? Such a strong currency is not good for growth, I do advocate for a target rate of US$1: Z$10. This, therefore, calls for the introduction of a new stable currency.

Conclusion

Zimbabwe is our home and everyone needs to focus on making it work. Even the political polarisation in this country which shocked me in various WhatsApp groups towards elections will subside when the economy is stabilised. The first step towards stabilising the economy is introduction of a well-managed local currency and use of an effective monetary policy to control both exchange rate and interest rates.

Ayanda Nyanga is an investment banker. He is a chartered accountant in Zim and SA. He is a holder of B.Acc (Zim) MBL (SA) and LLM (UK).