. . nation mulls new currency board
UNITED States-based Johns Hopkins University’s applied economics Professor Steve Hanke had all the bragging rights after an economic prescription he prepared nearly 20 years ago was finally taken by a patient he would consider to be difficult: Zimbabwe’s government.
BERNARD MPOFU
Hanke is no stranger to most Zimbabweans both within and outside government.
His economic analysis, particularly on currency and inflation developments in the southern African nation, has been fodder for local journalists and economic commentators.
On the contrary, government sympathisers have frowned at his figures, often describing them as sensational. During updates on inflation and other key economic indicators, suspended Zimbabwe National Statistics Agency director-general Taguma Mahonde would take no time in trashing Hanke’s calculations.
The applied economics professor would hit back and in some cases question Finance minister Mthuli Ncube’s economic trajectory.
Zimbabwe is battling rising inflation, a weakening domestic currency, power shortages and high unemployment levels, among other economic problems.
“Zimbabwe’s Finance Minister Mthuli Ncube is considering the adoption of a currency board,” Hanke tweeted on X after the Treasury boss announced his plans.
“Since we don’t have any details, we don’t know whether Ncube is playing games, or if he is for real. The idea of a currency board for Zim was first established in my book Zimbabwe: Hyperinflation to Growth, published in 2008 in Harare.”
In his book titled Zimbabwe: From Hyperinflation to Growth, which was published in 2008, Hanke said the hallmark of Zimbabwe’s economic collapse was hyperinflation.
“The source of Zimbabwe’s hyperinflation is the Reserve Bank of Zimbabwe’s money machine,” Hanke wrote.
“The government spends, and the RBZ finances the spending by printing money. The RBZ has no ability in practice to resist the government’s demands for cash. Accordingly, the RBZ cannot hope to regain credibility anytime soon. To stop hyperinflation, Zimbabwe needs to immediately adopt a different monetary system.
“Any one of three options can rapidly slash the inflation rate and restore stability and growth to the Zimbabwean economy. First is ‘dollarisation.’ This option would replace the discredited Zimbabwe dollar with a foreign currency, such as the US dollar or the South African rand. Second is a currency board. Under that system, the Zimbabwe dollar would be credible because it would be fully backed by a foreign reserve currency and would be freely convertible into the reserve currency at a fixed rate on demand. Third is free banking. This option would allow commercial banks to issue their own private notes and other liabilities with minimum government regulation.
“Central banking is the only monetary system that has ever created hyperinflation and instability in Zimbabwe. Prior to central banking, Zimbabwe had a rich monetary experience in which a free banking system and a currency board system performed well. It is time for Zimbabwe to adopt one of these proven monetary systems and discard its failed experiment with central banking.”
This week, Ncube announced that the government will soon embark on currency reforms to save the domestic currency from collapse. The Zimbabwe dollar has since 2016 gone through several episodes of currency volatilities.
“The idea going forward is to make sure that we manage the growth of liquidity which has a high correlation to money supply growth and inflation. The way to do that is to link the exchange rate to some hard asset such as gold,” said Ncube in a Press briefing.
“To do that you have to have some sort of currency board type system in place where the growth of the domestic liquidity is constrained by the value of the asset that is backing the currency.”
Immediate past Citizens’ Coalition for Change leader Nelson Chamisa said without confidence from the public, the measures are bound to fail.
“This confidence deficit crisis can’t be addressed by setting up a currency board nor establishing a structured currency framework,” Chamisa tweeted on Thursday.
“As for the proposed currency board, my assessment of where this has happened successfully shows that the success hinges on accountability, transparency, and adherence to legal instruments — qualities sorely lacking in Zimbabwe’s current governance. The pervasive state policy inconsistency erodes confidence in the system’s integrity. Without these critical success factors in place, the currency board is doomed to fail.
“For avoidance of doubt, I know that currency boards have been used in over 38 countries with notable success because of the ‘confidence effect’ especially in circumstances where credible people of integrity and high standing were appointed into the board.”
Last week, President Emmerson Mnangagwa said the authorities were looking to introduce a “structured currency”, without explaining how that would work.
