‘Sound economic policies can protect structured currency’

ECONOMIC observers have warned monetary authorities to implement sound policies that will see the structured currency to be launched today being able to retain value, anchor stability and help curb inflation.

The structured currency to be launched by the Reserve Bank of Zimbabwe (RBZ) Governor, Dr John Mushayavanhu, comes against a background of persistent economic woes that include continued depreciation of the local currency against the United States dollar and an upward spiralling of inflation that economic analysts say was being propelled by exchange rate instability.

The negative macro-economic environment has proved a nuisance to the fiscal and monetary authorities despite a number of interventions such as the introduction of the gold coins and digital tokens introduced last year to douse the fire that has created economic turmoil in the market.

Due to exchange rate instability, depreciation of the local unit and the runaway inflation, consumer disposable incomes have been eroded.

As of yesterday, the Zimbabwe dollar was trading at US$1: $40 000 on the parallel market while the official market was US$1: $26 400.

In an interview, economic commentators said authorities need to build confidence around local currency for it to sustain macro-economic stability.

“We wait to see the full details of how that currency will work for us to be able to comment from a knowledgeable position because we do not know really what it will mean and how it will work.

“We need to see what differences will be there between this currency and for example the gold coins. If it is resource based, based on gold reserves for example, the gold coins are also based on the actual gold so we want to see how different it would be because that gold coin or the digital token could actually be used as a currency.

“So this one (structured currency), unless it could just be a rebasing of the local currency where you know, you are now slashing zeros because there are many zeros now and then having discipline in terms of money supply growth from then on because if you do not do that, money supply will start growing again.

“For the structured currency to work, authorities need to really manage money supply growth and implementing policies that ensure that you are really guarding the value of the currency,” he said.

“By guarding the value of the currency, you are building confidence in the currency, so it needs to be supported by serious policies that safeguard the value of the currency so that if there are shortages of the currency, you are also putting foreign currency as Government or as the Reserve Bank in order to safeguard the value of the currency and building confidence around it.”

Due to the depreciation of the Zimbabwe dollar consumers have lost confidence in the market preferring to transact using the greenback.

“So, we want to hear what policies will accompany that currency and what is the basis of the currency; so that we see if there is any difference and if it is going to work.

“And also the discipline that the new Governor (Dr John Mushayavanhu) will bring, if it is going to be there- if we are going to see a difference from what has been happening in the past, ultimately the market can have confidence in the currency.

“Without that, you can end up having more of the same,” said economic analyst and former Zimbabwe National Chamber of Commerce president Trust Chikohora.

When the digital tokens and gold coins were introduced, he said, they played their part in stabilising the exchange rate.

“There was stability for a certain period, I think maybe for between six months to a year when the initial gold coins were put in place.

“But this was accompanied by a tight money supply situation and that’s when interest rates went up and the gold coins were mopping up liquidity, so there was no idle liquidity for people to be speculating on currency. For more than six months to a year, the rate was stable -in fact, there was convergence between the official rate and the parabolic rate.

“The official rate was also allowed to float in line with supply and demand. Those are some of the policies that came into play and there was convergence of the official market rate and the parallel market rate, the parallel market rate actually came down and merged with the official rate – the prices, some came down and they stabilised for six months to a year,” he said.

In a separate interview, Kipson Gundani said: “Currency is confidence and that’s the underlying fundamental that needs to exist so it does not matter what colour the currency is, as long as confidence there is lacking nothing much that we can talk about. So, you discover that Zimbabwe has been in this currency crisis perhaps for the past three decades, the reason that we still have the challenge today certainly speaks volume on the ability and sincerity of the Government to deal with this.”

“I think that’s a million-dollar question to say is Zimbabwe really unable to deal with this currency issue; it’s a question of unwillingness to deal with it because there are certain elements that are making billions of dollars out of it. In my view, it doesn’t matter what kind of a currency it is- it requires the political will and the right policy behaviour such that you do not create much of it for the simple reason of killing it.

“More importantly, you really need confidence.”

Dr Langton Mabhanga said for the structured currency to work, though authorities have not revealed the details of how it is going to be implemented, the country needs to work on its optics.

“We need to work on our optics, you do not lobby for money as it is deemed to have value, and it should be attractive and attract demand. People should hunt for money. So, how we do that is let us have money as legal tender, it should trade internationally. “So, the monetary authority should fulfil those parameters, we need money that can trade internationally, that trades on its own and hedged by value,” he said.

To achieve the above fundamentals, Dr Mabhanga said Zimbabwe’s natural resources like precious minerals which are in global demand should be exploited to full value chains in-country.

“Let’s trade them using our currency and this is how you create demand for your own money; not to have raw minerals or ores going out of the country.

“Even international companies or mining houses in the country should pay for the value of our minerals here. They do not own what is in the ground, they own machinery and equipment but the minerals are for Zimbabweans,” he said.