New currency’s ‘golden’ opportunity to shine
WHEN Russia launched its military operation in Ukraine on February 24, 2022 to block the continued eastward expansion — or encroachment — by the United States-led NATO, through its proxies in Kiev, it expectedly came under siege from Washington and her allies, particularly in Europe and Asia.
Today, Russia holds the distinction of being the most sanctioned country in the world.
Experts now say it is subject to over 18 000 restrictions, and counting, on different items, which is “more than the combined number of sanctions on Iran, North Korea and Syria”.
Since its misadventures in Somalia (1993), where its military was embarrassed by Mohamed Farrah Aidid’s militia; Vietnam, where it was outflanked and outfought by the Viet Cong until its withdrawal in 1973; and Afghanistan; as well as Iraq, among other countries in which it tried to intervene militarily, sanctions have become the US’ weapon of choice.
Zimbabwe, together with more than 22 other countries including China, Cuba, Myanmar, Iran, North Korea, Syria, Venezuela, Afghanistan, Belarus, the Democratic Republic of the Congo, Ethiopia, Iraq, Lebanon, Libya, Mali, Nicaragua, Sudan and Yemen, is also part of the ever-growing club of US-designated “bad boys”.
But it is critical to note that when Russia’s sanctions began to kick in, its currency — the ruble — initially lost more than 60 percent of its value against the US dollar.
Moscow, however, had an ace up its sleeve.
As a major supplier of oil and gas, it began to demand payment in rubles, and the results were both instantaneous and impactful.
Not only did the ruble recover, but it also actually spent most of 2022 as the world’s best-performing currency. Kikikiki.
So, with Russia’s relative success in fending off sanctions over the past two years, the fretful West has continued to add more and more sanctions.
What, however, continues to vex Western analysts is Moscow’s ability to economically outperform the US, the chief sanctioner, despite being buffeted by these incredibly onerous coercive measures.
While its economy was largely expected to contract in 2023, it grew by more than 3 percent, exceeding most Western economies.
This year, the International Monetary Fund has revised upwards its projected growth from 1,5 percent to 2,6 percent.
To a significant extent, part of President Vladimir Putin’s success has been driven by its resources — oil (which is sometimes referred to as “black gold”) and gas — as well as pivoting the economy on the military campaign in Ukraine, which economists call “military Keynesianism”.
This simply means boosting military spending in order to stimulate economic growth.
Sanctions and currencies
You see, by their very nature, sanctions are designed to especially attack a targeted nation’s currency, which is a symbol of its wealth.
A precipitously declining and volatile currency in the pockets of people creates political disaffection with the governing party, which plants seeds of unrest.
It is, therefore, not uncommon that sanctioned countries often grapple with volatile currencies and, by extension, soaring inflation.
We have seen Türkiye’s struggles with the lira and Iran’s continued challenges with the rial.
In our case, we all saw how the Zimbabwe dollar floundered after the US enacted the Zimbabwe Democracy and Economic Recovery Act (ZDERA) in 2001.
The currency eventually collapsed when it was officially demonetised in September 2015.
Its reintroduction, as part of broader currency reforms that began with the advent of the Second Republic in 2017, has not been without its own challenges.
For as long as ZDERA still exists, our currency will always be under attack.
This is what the often-quoted former US Assistant Secretary of State for African Affairs, Chester Crocker, meant when he said: “To separate the Zimbabwean people from ZANU PF, we are going to have to make their economy scream, and I hope you, Senators, have the stomach for what you have to do.”
And instructively, in a statement before the SADC Anti-Sanctions Day in 2020, the regional bloc’s permanent missions in Geneva made the connection between Zimbabwe’s economic challenges and sanctions.
“Due to declining external budgetary support, Zimbabwe’s budget deficit has largely been financed from domestic borrowing, which has triggered high inflation,” read the statement in part.
It added: “Due to the absence of balance of payment support, Zimbabwe’s balance of payment position has been deteriorating significantly since the imposition of sanctions. The sanctions have led to Zimbabwe and its entire financial linkages with the rest of the world being branded as high risk, thereby making the country a compelling target for de-risking interventions by lending correspondent banks in the USA and Europe.”
A new life
But since its reintroduction, the Zimbabwe dollar has suffered bouts of instability owing to market indiscipline, lingering trauma of the hyperinflationary era and the inherent difficulties of weaning off an economy from disproportionate dependence on the US dollar, which is the lingua franca of cross-border trade, transactions and trade.
Although it was anchored in prudent financial management, which saw both the fiscal and current account deficit being brought under control, the Zimbabwe dollar was largely a fiat currency, which was not tethered on any real value.
It made it vulnerable to market sentiment and raging indiscipline.
This is why no one was able to provide a sensible explanation on why the local unit was losing value despite the economy generating more exports and having a healthy current account surplus.
Even this year, notwithstanding the global economic headwinds, our exports continue to perform above expectations.
In January, we exported goods worth US$540 million, while shipments further rose to US$644 million in February, which is remarkable.
Cumulatively, this means we generated close to US$1,2 billion in two months. But the good news is that we no longer have a fiat currency, but a new one whose value is linked to gold.
Traditionally, the currencies of advanced economies were linked to gold, but this system collapsed when US president Richard Nixon terminated the convertibility of the US dollar to gold in 1971.
However, rising global inflation has seen emerging economies, such as China, Russia, Türkiye and India, stocking up on gold since circa 2008.
Countries are increasingly using gold as a guarantor of currency value and largely shifting from dependence on the US dollar.
This is likely to shape a new multipolar world, where the Global South coalesce around BRICS (Brazil, Russia, India, China and South Africa) Plus, which is presently considering establishing a currency for the bloc.
Fully aware of the trajectory the world was taking and the seismic shifts in global power, President ED gave a directive for mining companies to pay their royalties in kind with effect from October 1, 2022.
And this has been systematically used to build the country’s gold reserves, which are now valued at US$185 million (2,5 tonnes).
When added to the US$100 million in cash reserves, it means the Reserve Bank of Zimbabwe now has a cumulative US$285 million that can be used to defend the 2 trillion Zimbabwe dollars (worth about US$90 million) that were in circulation.
Hypothetically, this makes the central bank, now under the stewardship of Dr John Mushayavanhu, better able to defend the new local currency, ZiG.
Man in the arena
But the cynics and naysayers are at it. Like Nathanael, who later followed Jesus, they are asking: “Nazareth! Can anything good come from there?” (John 1:46).
But this matters not, as nothing will turn on it.
We are fighters and a people of consequence, who determinedly waged an armed struggle for more than 14 years to free ourselves.
We know that victory is certain. Cynics always remind Bishop Lazi of the speech that was made by Theodore Roosevelt (the 26th US president) in Paris, France, in 1910.
“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better,” he said.
“The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”
President ED is that man. Bishop out!