WHEN United States economist Steve Hanke wrote a paper outlining how difficult it is for a country to bring back its currency and defend its value after dollarisation in its various forms and shapes, some Zimbabwean government apologists dismissed him as an alarmist and out of touch with reality.
BERNARD MPOFU
Now after several episodes of interventionist measures and command-style policies which evoke yesteryear trepidations, the government’s immediate plan to bring back the Zimbabwe dollar has all but collapsed, as rising levels of inflation and low output in the real sector continue to blight any prospects of defending the value of the local unit.
Faced with unprecedented economic situation characterised by record inflation, which officially reached 231 million percent in 2008, Harare was forced to ditch the Zimbabwe dollar in 2009 for a basket of currencies mainly dominated by the greenback.
From 2009, the US dollar became Zimbabwe’s anchor currency until 2015 when the monetary authorities introduced bond notes, a fiat currency which was brought into circulation as an “export incentive”.
In 2019, the government officially abandoned the multi-currency system for the sole use of the Zimbabwe dollar. The outbreak of Covid-19 during the same year prompted the monetary authorities to allow the use of “free funds”, which simply meant bringing back the US dollar.
Since then, everyone has been demanding the greenback as payment — from roadside candy sellers to government departments.
Finance minister Mthuli Ncube this week announced that the multi-currency system, or rather the greenback, would remain in use until the end of the country’s first economic blueprint in 2025.
Before that, the authorities announced plans to liberalise the foreign exchange market after a few years of managing the exchange rate which saw the Zimbabwe dollar being overvalued. Economic analysts who spoke to The NewsHawks this week said the de-dollarisation project has been shelved, as Harare parks its sovereignty for economic wisdom.
“The move towards full de-dollarisation has been abandoned,” Prosper Chitambara, as economist with the Labour and Economic Development Research Institute of Zimbabwe, said.
“I still believe that we are still in transition under a multi-currency regime that has been entrenched by government. I think the idea is that by the end of the National Development Strategy 1, we have been able to stabilse the economy and also ensure sufficient confidence and trust in the local currency which should then provide the right and conducive frame[1]work and environment for the government to fully de-dollarise.”
As the economy wobbles, many Zimbabweans are beginning to draw parallels between what happened in 2008 and now. While rising inflation remains the common denominator, this time around, unlike then, shops are well[1]stocked, but most consumers lack the buying power.
“I would not blame Zimbabweans for making such comparisons,” Victor Bhoroma, a Harare-based economic analyst, said.
“There have not been sufficient reforms from the central bank and from an economic point of view to instil sustained confidence in the local market. Most of the issues that led to the 2008 economic collapse are still with us even though the two periods differ in terms of inflation levels, the currencies that are in circulation and the general economic state.”
Zimbabwe’s extreme and uncontrollable inflation made it the first — and so far only — country in the 21st century to experience hyperinflation. Gift Mugano, a professor of economics, based in Harare, said Ncube’s statement was nothing new.
“The public need to know that the minister of Finance did not announce any new measure,” Mugano said.
“What he told us is the same story which we all know — the same measures which were pronounced more than two years back . . . The continuation of the Zimbabwe dollar together with the US dollar is a measure which was announced end of March 2020. There is nothing new there. We used to have Statutory Instrument 127, which compelled people to use the official exchange rate from the auction system.”
Statutory Instrument 127, Mugano said, became a nullity after President Emmerson Mnangagwa’s directive instructing business to use the interbank rate.
Morgan & Co, a local brokerage, said the issuance of gold coins, which critics say is an admission that the government had failed to defend the value of the Zimdollar, follows from the authorities’ aim to tap into nostro reserves.
In his seminal work, Phillip Cagan defined hyperinflation as beginning when monthly inflation rates initially exceed 50%. It ends in the month before the rate declines below 50%, where it must remain for at least a year.
Official figures show that Zimbabwe entered the hyperinflationary era in March 2007 and the period ended when the nation abandoned its currency in 2009. Official figures show that at Independence, annual inflation was 5.4% and month-on[1]month inflation averaged 0.5%.
The largest currency denomination was ZW$20, and the Zimbabwe dollar was the most wide[1]ly used currency — involved in more than 95% of transactions. Officially, US$1 bought ZW$0.647, and real GDP in 1980 grew 14.6% over 1979 levels.
Research shows that on a per capita basis, real GDP (purchasing power parity-adjusted) in 2005 prices equaled US$232; the unemployment rate was 10.8% in 1982.
By July 2008, when Zimbabwe’s Statistical Office released its last inflation figures for that year, the month-over-month (non-annualised) rate had reached 2 600.2% — more than 231 million percent on a year-over-year basis.
Experts say hyperinflation, which rapidly destroys a currency’s value, is fundamentally a monetary phenomenon.
