Opinion / Columnist
Zimbabwe cash crisis perspective
13 Jun 2016 at 10:20hrs | Views
In my previous article titled "Dollarisation vs. Yuanisation: The Zimbabwe Dilemma" published on "Bulawayo24" in Jan 2016, I advocated for the adoption of the South African Rand as an official currency in Zimbabwe rather than the US Dollar or the Chinese Yuan and for the country to join the Southern African Customs Union (SACU).
The recent events as highlighted by the current cash shortages being experienced in Zimbabwe have underscored the fallacy of dollarising the economy in a least developed country that is integrated within Southern African economies. The dollar should be an external medium for our international obligations to the IMF, World Bank, AU, AfDB etc. and the internal day to day left to the Rand.
Why should consumables imported from South Africa be traded in US dollars?
Surely it does not need an economist to point out that, trade with South Africa accounts for 70% of Zimbabwe's trade; it makes economic sense therefore, to use the Rand and reduce transaction costs and eliminates currency risk.
The US dollar has created conditions for speculation and for opportunists to externalise the US dollar that Zimbabwe gains from its meagre exports. The country has become a haven for those seeking the green back.
On the other hand the Rand lacks that attractiveness as it is already in circulation and acceptable as legal tender in SACU and the broader SADC region as well.
What are the solutions for Zimbabwe?
The starting point for the country is to conduct all government business in Rands followed by all businesses reporting, accounting and trading in Rands.
Acknowledge the central bank as a source of confusion and instability in the market.
The bank should be an institution that instils confidence in the market rather than alarm and despondence. Rumours and allegations of the introduction of the Bond Notes/ Yuan and Zim dollar contribute to the high demand of the US dollar, resulting in hoarding, externalisation and the black market. The 2008 hyper inflationary period is still fresh in people's minds and they would rather secure their savings in US dollars than wake up to the amounts converted to whatever new policy has been effected overnight.
The bank should have predicted these cash shortages and the challenges presented by the dominance of the US dollar in the multi-currency set-up.
The bank has been actioning on the symptoms rather than the root causes.
Use the US$200 million facility to rehabilitate local industry, support and save the country from importing little items like cooking oil. Industry needs to manufacture basic food stuffs in the country and create employment as well.
The use of plastic money should be promoted and encouraged including the internet banking. Surely in this day and age internet banking, mobile banking and paying by debit/credit cards is the norm.
Again fingers point to the central bank, the ridiculously high fees that the bank charges for RTGS (Real Time Gross Settlements) threaten this form of transacting. The bank is shooting itself in the foot here. How do you promote this facility when you seek to profit and fund raise from it?
Likewise, the banks taking a cue from the central bank charge exorbitantly high banking fees in a challenged economy as well as high RTGS fees.
Surely these bank charges must fall.
The executives in these banks have publicly admitted to these profiteering tendencies through high bank charges..
There is a need for a Social Contract in the country, with business, labour, civil society and government coming together to acknowledge the challenges the country faces and chart a new path through dialogue, agreement and commitment from all parties.
The Confederation of Zimbabwe Industries, the Banks and the general populace are against the introduction of the Bond Note (pseudo local currency), yet all parties acknowledge the challenges of the US dollar and agree on the use of the Rand.
The solutions to the country's problems lies in the people of Zimbabwe as collective, charting and implementing sound macro-economic policies that will create an environment for business to prosper and enable job creation in partnership with SACU.
The US dollar has been strengthening against emerging market currencies and with an interest rate hike to be effected soon by the USFed. We expect the US dollar to continue strengthening, impacting negatively against the meagre Zimbabwean exports that are currently taking place.
On the other hand, imports will become cheaper as the US dollar strengthens and coupled with the drought and need to import maize in Zimbabwe, imports demand will increase drastically, the current account deficit will be exacerbated and soon rather than a later a begging bowl to the IMF and other multi-lateral institutions would take place for balance of payments support.
The recent events as highlighted by the current cash shortages being experienced in Zimbabwe have underscored the fallacy of dollarising the economy in a least developed country that is integrated within Southern African economies. The dollar should be an external medium for our international obligations to the IMF, World Bank, AU, AfDB etc. and the internal day to day left to the Rand.
Why should consumables imported from South Africa be traded in US dollars?
Surely it does not need an economist to point out that, trade with South Africa accounts for 70% of Zimbabwe's trade; it makes economic sense therefore, to use the Rand and reduce transaction costs and eliminates currency risk.
The US dollar has created conditions for speculation and for opportunists to externalise the US dollar that Zimbabwe gains from its meagre exports. The country has become a haven for those seeking the green back.
On the other hand the Rand lacks that attractiveness as it is already in circulation and acceptable as legal tender in SACU and the broader SADC region as well.
What are the solutions for Zimbabwe?
The starting point for the country is to conduct all government business in Rands followed by all businesses reporting, accounting and trading in Rands.
Acknowledge the central bank as a source of confusion and instability in the market.
The bank should be an institution that instils confidence in the market rather than alarm and despondence. Rumours and allegations of the introduction of the Bond Notes/ Yuan and Zim dollar contribute to the high demand of the US dollar, resulting in hoarding, externalisation and the black market. The 2008 hyper inflationary period is still fresh in people's minds and they would rather secure their savings in US dollars than wake up to the amounts converted to whatever new policy has been effected overnight.
The bank should have predicted these cash shortages and the challenges presented by the dominance of the US dollar in the multi-currency set-up.
The bank has been actioning on the symptoms rather than the root causes.
Use the US$200 million facility to rehabilitate local industry, support and save the country from importing little items like cooking oil. Industry needs to manufacture basic food stuffs in the country and create employment as well.
The use of plastic money should be promoted and encouraged including the internet banking. Surely in this day and age internet banking, mobile banking and paying by debit/credit cards is the norm.
Again fingers point to the central bank, the ridiculously high fees that the bank charges for RTGS (Real Time Gross Settlements) threaten this form of transacting. The bank is shooting itself in the foot here. How do you promote this facility when you seek to profit and fund raise from it?
Likewise, the banks taking a cue from the central bank charge exorbitantly high banking fees in a challenged economy as well as high RTGS fees.
Surely these bank charges must fall.
The executives in these banks have publicly admitted to these profiteering tendencies through high bank charges..
There is a need for a Social Contract in the country, with business, labour, civil society and government coming together to acknowledge the challenges the country faces and chart a new path through dialogue, agreement and commitment from all parties.
The Confederation of Zimbabwe Industries, the Banks and the general populace are against the introduction of the Bond Note (pseudo local currency), yet all parties acknowledge the challenges of the US dollar and agree on the use of the Rand.
The solutions to the country's problems lies in the people of Zimbabwe as collective, charting and implementing sound macro-economic policies that will create an environment for business to prosper and enable job creation in partnership with SACU.
The US dollar has been strengthening against emerging market currencies and with an interest rate hike to be effected soon by the USFed. We expect the US dollar to continue strengthening, impacting negatively against the meagre Zimbabwean exports that are currently taking place.
On the other hand, imports will become cheaper as the US dollar strengthens and coupled with the drought and need to import maize in Zimbabwe, imports demand will increase drastically, the current account deficit will be exacerbated and soon rather than a later a begging bowl to the IMF and other multi-lateral institutions would take place for balance of payments support.
Source - vusumuziblog.wordpress.com
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