Govt must not undermine new currency
IN a statement in 2020, the Reserve Bank of Zimbabwe (RBZ) said the depreciation of the currency at the time was largely a result of “behavioural and other non-monetary factors such as negative perception, adverse expectations and speculative tendencies of economic agents”. The central bank, of course, was running away from responsibility after the ZWL$ tanked a year after it was reintroduced. When President Emmerson Mnangagwa announced the return of the Zimdollar in July 2019, the hope was that the new currency would bring stability to the markets.
It was not to be, as the Zimdollar primarily failed because of the central bank’s own actions coupled with the failure of government policy.
RBZ printed too much money, with its own data showing a 307% growth in reserve money between June and December 2019, a period when the new currency was in its formative stages.
The amount of money in circulation, including deposits with the RBZ, jumped from ZWL$3,3 billion at the end of 2018 to ZWL$8,8 billion in December 2019.
Government seems to have an insatiable apetite for cash, and the tendency to turn to the printing press to fund capital expenditure, higher salaries for government workers, buy new vehicles for chefs and/or to curry favour with political allies has always had disastrous economic consequences.
Will government maintain the fiscal and monetary frugality to keep things on an even keel?
The move to introduce US dollar allowances and allowing retailers to trade in forex a few years ago simply set up the newly-reintroduced Zimdollar for failure. With the dual currency regime scheduled to continue until 2030 at least, it is unlikely that the new ZiG currency will survive for long.
One disturbing aspect which may be a bad omen for the new currency is that when the authorities launched the ZiG, the notes were not released into circulation and will only be available at the end of the month, nearly four weeks after it became legal tender.
At the same time, the market has basically refused to continue transacting in the Zimdollar, leaving mostly the United States dollar and the South African rand to fill the void.
The authorities have basically left the market to function without a local physical currency in circulation. Can they convince the market to adopt the ZiG? The new currency is being set up to fail.
After another disputed election in August 2023 and subsequent negative political developments, there is a palpable collapse in confidence in Zimbabwe’s political leaders.
The failure to follow through on promised political and economic reforms has meant that Zimbabwe cannot win debt relief or access meaningful credit, both of which would have helped to support the Zimdollar.
So, what hope does this new “structured currency” have of lasting the distance? Not a snowball’s chance in hell, and the authorities are to blame.