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Déjà vu — Reflection on Zim’s unending currency tribulations



THIS past week, two closely-linked high-level meetings concurrently took place in Zimbabwe’s capital, Harare.


Although the attendees of these meetings were different, what was under discussion was largely the same: Zimbabwe’s wobbling economy and how to move it forward.

Firstly, Treasury through its social media X handle announced that the International Monetary Fund (IMF) team was in town.

Zimbabwe badly needs an IMF Staff-Monitored Programme for the umpteenth time as a key step towards normalising relations with international financial institutions and other creditors.

A sluggish approach in adopting neo-liberal political and economic reforms has been the stumbling block over the years.

But Harare says it remains committed. Secondly, President Emmerson Mnangagwa in his first cabinet meeting for the year hinted on looming currency reforms to save the local dollar. But many seem to have an idea on what is in store.

Here we go again, same old story just a different day; a creative sampling of a cleaner version of the late US rapper DMX’s hit song would sum it all up neatly.

 One gets some sense of déjà vu. Mnangagwa said his government is planning a new round of “currency reforms” to try and save the Zimbabwe dollar, which has lost over 90% of its value since last year and is now used by only a fraction of the economy.

A “structured currency” is now government’s latest arsenal to salvage the local currency from being worthless, we are told.

“Prudent fiscal and monetary policies and promotion of a conducive environment remain critically important for the stability and growth of our economy,” Mnangagwa said.

“Accordingly, the fiscal and monetary authorities are implementing a raft of policy measures to arrest price increases, stabilise foreign exchange rate, maintain value for our currency and ultimately encourage savings. We shall soon be announcing the production of our structured currency.”

 The southern African nation has in the past undertaken a raft of measures since 2016 to stabilise the currency.

The impact of such measures had mixed reactions over the years. Curiously, Mnangagwa’s announcement came barely a year after the authorities had introduced digital gold tokens to ease demand on the greenback.

Official figures show that nearly 80% of total transactions in Zimbabwe are done in hard currency.

Over the years, one issue that has been as clear as daylight is how the authorities have consistently blamed the invisible hand for the economic collapse, and that has not changed.

 Those who have taken the stick include business, sanctions and, closely linked to that, the political opposition.

 After ditching the Zimbabwe dollar in 2008 to arrest record inflation, the authorities were to face another currency conundrum later on notwithstanding the fact that in 2009 the banking sector effectively started from a zero balance since Zimbabwe dollar-denominated capital had been wiped out by inflation.

 When the government introduced bond notes in 2016, outgoing Reserve Bank governor John Mangudya made bold statements that he would throw in the towel if the fiat currency had failed.

He said the bond notes would be an export incentive and the government would withhold them from the system once exports grow. It did not happen.

 Foreign currency became scarce after the authorities said the bond notes were at par with the United States dollar.  

 Nearly eight years on, Mangudya still occupies a lofty office at 81 Samora Machel Avenue, popularly known as the Reserve Bank building, and the fight to defend the value of the local dollar seems far from over.

 His two terms as central bank chief will soon come to an end and his successor and namesake, John Mushayavanhu, may introduce the “structured currency”.

 In 2020, government shook the markets when Information and Publicity permanent secretary Nick Mangwana announced that all mobile money platforms transactions had been suspended.

Mangwana then said EcoCash, a unit of telecommunications group Econet, had been targeted by criminals engaged in illicit transactions destabilising the economy.

“EcoCash, however, which controls nearly 94% of all mobile transactions, is at the centre pivot of this problem and its resultant impact on Zimbabwe’s economy,” he said.

 Not only were mobile money platforms suspended. The Zimbabwe Stock Exchange, a prudent investment option for both individual and institutional investors, was not sparred.

 During the same year, the government said the “fungibility” of Old Mutual, Seed Co and PPC shares – which allowed buyers to transfer shares between the ZSE and the Johannesburg Stock Exchange – was behind the collapse of the domestic currency. This choice was lifted.

For independent economists, a sharp rise in money supply has been the catalyst for the local dollar’s crash.

The government, they argue, should also put a cap on its spending, something that flies in the face of populist measures often pursued during elections.

Ahead of the August 2023 general elections, Mnangagwa threatened to crack the whip on those engaged in black market forex trade. He warned that the government could soon bring an end on the multi-currency system, which had been widely credited to slowing down price increases. Fast forward.

After the elections, a new statutory instrument (SI) giving legal effect to the use of the United States dollar alongside the domestic currency was gazetted.

The monetary system would continue till 2030, the SI stated. Official figures show that money supply grew by 130% from June to November 2023 as President Mnangagwa’s administration worked around the clock to retain and consolidate power during election year.

Just before this, government contractors were blamed for “sabotaging the economy” by fuelling parallel market transactions.

For a short time, the economy, particularly the exchange rate, stabilised when payments to contractors were halted.

 The wheels later came off as the government continued to print more money.

 With several episodes of attempting to restore the value of the Zimbabwe dollar now jettisoned, public trust in government policy and consistency remain the missing pieces of the puzzle, analysts argue.

“Returning to the present day, we now have a situation where the general public and foreign  investors have zero trust in the management of the ZWL by the government but have full faith in a USD bank note,” John Legat, Imara Asset Management chief executive, says in his 2024 economic outlook.

“Once bitten twice shy, they have no faith in the banking system to look after their USD deposits or in the Government who could change the monetary system at the issuance of a Statutory Instrument, as it has done before.

“The Government authorities therefore find themselves in more of a pickle than before. During the period 2009 to 2014 there was at least trust in the formal banking and retail sectors.”

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