THE future of the Zimbabwe dollar, rapidly losing ground to the greenback currently, is bleak, unless the government starts preferring it for the payment of all taxes, among other transactions, as well as backing it with gold reserves.
DUMISANI NYONI
Finance minister Mthuli Ncube yesterday released a series of measures to enhance the formal use of the domestic currency.
The local currency weakened 3.68% on the first day of official trade on 18 January to ZW$112 per US dollar.
It trades for less on the parallel market at more than ZW$200 per US dollar. The local unit’s collapse is stoking inflation, which reached an annual 61% in December last year. Today the currency officially trades at ZW$117 to the greenback.
The country re-introduced the local currency in 2019 and briefly outlawed the use of foreign currency. The transacting public is allowed to use any currency of choice when locally, a situation that has compounded the woes of the Zimdollar.
Economic analysts who spoke to The NewsHawks this week said the central bank should come up with policies that support the local unit, lest it die a natural death.
“The future of the Zimbabwe dollar is dependent on the policies that the Reserve Bank of Zimbabwe (RBZ) will adopt. I think the question should be, if it is to survive, what needs to be in place? What fundamentals need to be in place?” economist and academic Stevenson Dhlamini asked.
“I think the main issue is, if we are to see the Zimbabwe dollar surviving, we need to revert to a gold standard and stop measuring our currency against the foreign currency reserve but rather against the gold reserve that the RBZ has.
“That’s the one thing that will give the international community confidence about our currency and also encourage what the government is talking about as a free market initiative. That is very important because there is ease of doing business. People also develop confidence even in the currency because they know that property rights are respected and the ease of doing business is improved,” he said.
Dhlamini added: “I know people will argue that gold prices are unstable, but they have been fairly stable of late. Germany backs up its currency with gold. So if we are to revamp our currency, we need to prove to the world that we have sufficient gold reserves to back up the currency. That way, the Zimdollar will survive.”
Economist Cornelius Dube concurred with Dhlamini, urging the government to prioritise the local unit.
“The future of the Zimbabwe dollar is largely dependent on what the government is going to do because as you know there are many workers who are still earning in that currency. People want to earn in US dollars because of the signal that the government is giving. Government is not helping. Government’s position is that we are on the roadmap towards de-dollarisation,” Dube said.
Dube said people should be seeing evidence on the ground that actually “we are going towards de-dollarisation rather than re-dollarisation.”
“But the way the market is reading the signal from the government at the moment, is that we are going back towards dollarisation because the government itself is also showing an appetite for getting foreign currency.”
“That becomes a challenge to say whether we can sustain this onslaught against the local currency or not, it becomes an issue, but it’s still in the government’s court. If the government right now begins to prefer the local currency for all taxes for example, that on its own will give a signal that indeed the local currency is there to stay,” he said.
The government paid civil servants their bonuses in US dollars, and the revenue service collects a third of its income in greenbacks. Also, the government is asking for US dollar payments for passports.
“We don’t know what the government is going to do. We will see the message that the central bank is going to pronounce in the monetary pol[1]icy statement. That is the key to where the future of the local currency is going to be,” Dube said.
Economics Professor Stephen Hanke recently indicated that the Zimdollar had depreciated 93% against the US dollar since its re-introduction about two years ago.
“Zimbabwe’s currency is in a death spiral,” he said.
During a CEO Roundtable meeting held in Harare recently, Nigel Chanakira, president of the Zimbabwe Economics Society, said some people argued that the Zimbabwe dollar will not last another year while he postulated that “it will last longer because he (RBZ governor John Mangudya) is speaking to his policies and the auction system. So he will try and make sure that it works.”
Mangudya is expected to present his 2022 monetary policy statement on 8 February. During the recent meeting, Mangudya said the central bank was seized with the task of incentivising Zimbabweans to use the local currency.
The RBZ chief said de-dollarisation from the United States dollar to local currency will not be achieved overnight, adding that the country was in transition. He, however, said dollarisation was not feasible as this would cripple the country’s competitiveness and would be counter-productive to its efforts to stabilise the economy.
But economics Professor Tony Hawkins dis[1]agreed with the central bank governor, saying he was trying to preserve the local currency that nobody wants to use owing to its depreciation in value.
“In 2018/2019 he promised to preserve the value (of the Zimdollar), but since then prices have gone up 3 000% and the currency’s value has devalued by 99%. He talks about people using local currency but if you go to my bank, the hole in the wall (ATM machine) tells you you can draw 2 000 bonds, which are now worth US$0.88,” he said.
Hawkins said it was dishonest of the government to call for the use of the local currency yet paying civil servants’ bonuses in hard currency.
“If the Zimbabwe dollar is so great, why do I have to use foreign currency? It is the inconsistency, the contradiction, the deceit, the dishonesty of the government. They do not believe their own untruths; why should we believe in it?” Hawkins said.
Hawkins said the apex bank should go back to complete dollarisation to enable economic stability.
“Ideally, something I would be enthusiastic about, is going back to the US dollar again to try and stabilise things as we did (during my time on the RBZ board),” he said
