Latest News Editor's Choice

Opinion / Columnist

Zim dollar backed by gold is 'undiluted rubbish'

07 Jul 2013 at 15:51hrs | Views
Wananchi, as I stated in my last post, it is that season where every second is history and each hour brings its own unlimited bandwidth of fresh data and information. I warned in yet another post of the danger of being swallowed and engulfed.

An additional danger is that of fact constipation. Too much data fills your brain and you do not know how to process same. Your brain freezes like an old IBM computer running on some archaic windows program. You need the chlorination of some anti virus program, (better still just move over to Apple.)

I see many of you, and I see this data paralysis. Relax, exercise, live clean, read, eat healthy and know,that life in the time of struggle is not easy. Soon this will be over. There will be Zimbabwe on 1 August 2013, a new Zimbabwe. There will be Christmas, this year.

Despite the weighty shenanigans, they are executing, we must survive this and out survive them. They are history. Let us just hope that there will be no violence, that no one will be killed. That there will be peace and that no blood is shed for such an embarrassingly lost cause.

The Lost Cause or should I say the Revolutionary Party had its launch rally today (Friday) at the Zimbabwe grounds. This is a venue laced with history of the struggle of the working people of Zimbabwe.

Once upon a time in its checkered history, the Revolutionary Party without bussing or coercing anyone would fill this place with the masses. Once upon a time this place would flow with waves of Wananchi desperate to see its revolutionary leaders.

Those were the days when the Revolutionary Party had not mutated into what it is today. This was the time when crooks and gangsters, murderers and witches had not captured it.

Alas today the Revolutionary party tried to reenergize itself by going back to where it all began. What an embarrassment . The lack of organization,the lack of suaveness, the lack of energy and the divisions and factionalism were all there to see. The cold war, those-tensions, thick enough to cut with a hack saw.

My God why do they do this to each other.

It was also clear what all of you have always known. That there will be an election. Zanu PF against the MDC, Robert Mugabe against Morgan Tsvangirai. But there will be another election, which is the election between the two main Zanu PF factions, the Chaos Faction and the other one.

The latter election, as we saw at their primaries will take no prisoners. It is a last man standing fight. They are so divided and so angry that they would rather spoil their votes or vote MDC than vote for a candidate from the other side. That crowd too,with all the bussing and the forced closure of shops was pathetic.

The people have moved on. Museums and death parlous are not there favorite places.

Spare a thought too, for the poor boys Sulu and Jah Preyzah coerced and forced to perform at this morgue.

Spare a thought too for the old man. The man is old and needs rest. He will be ninety on his next birthday,for Christ sake. The body, the spirit is no longer willing. They are holding him stage-managing him, pushing him along despite the self evident fact that, the man has had his time.

They are a cruel lot, this Zanu lot.

It is going to be a long winter this one and a long long campaign for this lot. Each rally will be a spectacle of gaffes, blunders and accidents. Each rally will be a free generous display of gerontocracy, exhaustion and sterility of ideas. Today was just the beginning.

Wananchi, what was defining for me was the total absence of any meaningful plan or well articulated agenda to take this country forward. Never mind a proper a dissection and acknowledgement of our current status quo. This was after all the launch of a manifesto.

An opportunity to lay out an agenda for action. Sadly it was the old unclinical rabble we have had before. The truth of the matter is that problems can not be solved by the same mindset that created them. Two new things however stuck out like a pike staff. (Lewis Uriri,I will not take the bait)

The first was the clear statement that Zanu will bring the Zimbabwean dollar but backed by the bullion. The second was the much reported threat to pull out of SADC. Wananchi, the Revolutionary Party never ceases to amaze.

It is bad enough to suggest the return of the Zim dollar at this present moment in time but foolish to the point of insanity to suggest in this century a bullion backed currency.

Let us recall that dollarization was not the idea of any genius at the ministry of finance but was a specific recognition ,de jure of the de facto abandonment of the Zimbabwean dollar by you the Wananchi . Save for Panama in 1904, there has never been a case of voluntary dollarization .

All cases, Bolivia (1984-86), Poland (1989-92), Argentina (1989-1990:2000-01), Liberia (1970-80s) have been largely been underpinned by roughly the same factors, namely

1) hyperinflation

2) a huge budget deficit that is then monetized by excessive printing of money

3) debt overhang and debt default

4) Thriving and buoyant parallel black market for foreign exchange

5) a decimation of the domestic financial sector

6) a regime of negative rates of interest as the Gvt borrows at low rates to finance its activities

7) often times political turmoil and shortage of basic commodities

All the above factors were at play in our country during these dark days of what Governor Gono has described as the casino economy, more a hoodlum economy to me. The pirates of the Caribbean to be apt.

Between 1997 to the early 2000s our inflation averaged 34% with budget deficits of 8%. This was a reserve game of things to come. From 2004 inflation rose from 200% to the staggering 231 million % it reached in July 2008. By December 2008 it was a staggering 500 billion %.

From 2004 they forced the Central Bank to engage in unprecedented printing of money to finance what we now euphemistically refer to quasi fiscal activities. By 2008 quasi fiscal activities were over 46 % of GDP. Put simply the Central Bank had taken over Government.

My predecessor, Creighton Mumbengegwi at the Ministry of Finance became an expert in Solitaire. He had nothing to do.

As for rates of interests, these dropped from positive rates of around 9.2 % in 1997 to -11.4 by 2001 and a record -230 99933.7% by 2008. As a non economist it easier for me to see things much clearer than the learned members of this profession. So I will do it simply here.

Hyperinflation ,a major driver of Zimbabwe s abandonment of its currency is less to do with bad economics. High inflation is. But once month on month inflation is over a million, as we saw in our beautiful country, what is it stake is beyond economics.

To me hyperinflation such as we saw in Zim was the manifestation of the complete break down of the social contract.

Wananchi lost trust in the government institutions in their currency and in the State itself. They lost trust amongst themselves as citizens. A business would increase prices because it thought and understood that when it went back to its suppliers, prices would have increased. The law of the jungle.

So at the end of it, our crises years were nothing but a vicious predatory cycle of lack trust predicated by the failure of extractive institutions controlled by a predatory elite.

I can assure the Revolutionary Party that they created the loss of trust and breakdown in the Social Contract. Why the last 4 and half years have been different is that people trusted the MDC in Government. We restored the modicum of stability and growth now in existence.

Can our people ever trust Zanu PF and the Zimbabwean dollar with all the carnage and pillage it caused. Never.

But it goes beyond trust. Economies function on production.You eat what you kill, idiot. Supply side economics is the key driver of any economy. If you do not produce you wither and die.

During the crises years we stopped producing our economy lost 60% of its value between 1997 and 2008 and capacity utilization fell to below 10 % yet the countrys demand,consumption and general micro economic discourse did not change.

In other words, the regime was catching a mice, but having a meal of elephantine proportions. It does not work. You eat what you kill.

Herein lies the problem. A countrys currency is an organic relationship between its imports and exports. Where you are not producing and you are eating what others are producing, that relationship collapses and there is bound to be a divorce.

Let me be technical. A countrys currency is largely a measure of its balance of payments position.If the current account is in deficit, that is to say the country is importing much more than it exports there is a mismatch which impacts negatively on the exchange rate.

So terrible was our trade balance situation,that between 2000 and 2007 , the same fell from +US $300 million to -US$400 m by 2005 and at least -US $300 m by 2007. In general terms the ratio of exports to imports was one to ten. That is to say for every dollar that came in as exports ten dollars went out as imports.

This status quo could not a sustain a currency. That is why among other things the zeroes kept on coming back. The question to be asked today is whether we now have a sustainable current account position that can support the return of our currency.

Put differently are we producing enough and exporting enough so as to have a currency that our production can protect. That is the simple question, Wananchi.

The answer is clearly a no.

As clearly pointed out in my 2013 Budget Statement, we have not only an unsustainable current account position but so too the capital account, never mind my immediate challenges around our primary balance.

Our exports were around US $3 billion in 2012 whilst imports were around US$7.5 billion. A ratio of one is to four. 2013 will be worse.

So we clearly do not have the current account ,the exports ,at this point in time to sustain the return of the Zimbabwean dollar.In simple terms we are not producing sufficiently to support our own currency yet.

This is not politics. This is pure economics, pure logic. With great respect therefore the suggestion to bring back,the Zim dollar at this present moment in time is foolish. Now I come to the insanity element, the suggestion to bring back a bullion backed Zim dollar. What high sounding nonsense.

What Zanu are saying is that they will have reserves of gold, (it could in fact be silver). This will be then be kept in reserve or vaults, physically. Money or the new Zimbabwean dollar will now be printed based cent for cent by the gold in the vaults.

This is in fact how it used to work generally into the late 60′s before the world abandoned bullion backed currencies. So if Zanu wants to have the equivalent of $4 billion in circulation as notes and coins ( M1) they must find gold worth that same amount before they can print the new Zim dollar.

This is foolish.

For starters ,we are not even producing 20 tones of gold per annum. That gold is not even ours. Where would we get money to buy the gold anywhere. But why would we want to trap a whole four billion dollars in a vault when we could be using it. This is the insanity.

It is in fact the realization that, as long as their trust ,money with any value can be accepted as a means of storing value, or exchange. That is why the world ran away ,and wisely so from bullion based currencies.

The US $ is living proof of this. There are trillions of dollars circulating in every street in the world. They are not backed by anything except the fiction that the FED can make the same good. That is to say trust based on the imperial strength of the US. So this idea is undiluted rubbish.

Let me say to Zanu this is a serious subject which requires a lot of reflection, which self evidently they have not done.

They are on a few options available to us, viz

1) The continued existence of multiple currencies

2) joining the Rand Monetary Union with or without the Zim dollar

3) randisation or proper dollarization

4) adopting the regional currency that will come from eitherthe COMESa or SADC monetary union,whichever comes first.

5) Creating a currency board

6) introducing the Zim dollar but only under fixed exchange or managed float option.

We in the MDC have opted to maintain the current status quo of multiple currencies.However once our position improves clearly the concept of a regional currencies despite whatever problems are being experienced in the European Monetary union is an option.

The critical determining factor will always be supply side economics and nothing else. Wananchi, there are tired this lot. They do not have ideas. They are well past their sell date. Things are happening behind closed doors.

Good things.

God must help their actualisation .


Source - Tendai Biti
All articles and letters published on Bulawayo24 have been independently written by members of Bulawayo24's community. The views of users published on Bulawayo24 are therefore their own and do not necessarily represent the views of Bulawayo24. Bulawayo24 editors also reserve the right to edit or delete any and all comments received.