Spike in broad money supply behind price instability

SINCE the re-introduction of the Zimbabwe dollar in 2019, the market is awash with Zimdollars chasing too few goods, thus causing price instability.

In February 2023, the Zimdollar-denominated component of broad money spiked by 13,2% to reach $1,21 trillion from January 2023 levels.

Broad money is the total money supply which includes a wide scope for the definition of money — including both notes and coins, but also more illiquid forms of money — such as bank deposits, Treasury Bills and gilts.

In annual terms, this monetary aggregate registered a 334% growth from $279,38 billion attained in February 2022.

Disaggregating broad money into its Zimdollar and United States dollar components removes the effect of exchange rate movements and helps gauge the extent to which local money is created.

As such, the foregoing staggering statistics are showing that authorities are injecting Zimdollars into the economy at an unsustainable rate which puts pressure on the local currency to depreciate and prices to skyrocket.

Monetary aggregates for February 2023 and succeeding months are expected to continue showing unsustainable Zimdollar liquidity growth which is sustaining high price inflation.

Treasury is increasing recurrent expenditure, for instance, it recently doubled the salary bill for civil servants.

Fiscal and monetary authorities are also facing pressure from the need to buy forex from tobacco farmers and other exporters, payments for ongoing infrastructural projects, and support to the Grain Marketing Board for maize purchases ahead of the upcoming 2023/24 marketing season. Zimbabwe Coalition on Debt and Development