LEADING economists cast a pessimistic tone this week, arguing that a ‘structured currency’ under consideration may not hold ground against major units under current volatility.
They spoke as Mthuli Ncube, Zimbabwe’s Finance, Economic Development and Investment Promotion minister, told journalists in Harare yesterday that a new monetary policy statement expected today will spell out measures to bring confidence in the ‘structured currency’, which authorities said will hit the market soon.
The ‘structured currency’ is the latest effort to stabilise Zimbabwe’s currency, which has been in turmoil since 2000.
The Zimbabwe dollar depreciated to US$1:ZW$40 000 on the black market this week, from US$1:ZW$14 000 in January.
Annual inflation surged to 55% in March, from 47,6% in February, making it one of the highest such rate in the region.
Still, some experts argued that this figure is heavily understated. This week, analysts said in the absence of concrete action, the currency will be battered further in the coming months.
Following a tour of the Reserve Bank of Zimbabwe (RBZ)’s precious minerals vaults yesterday by President Emmerson Mnangagwa, incoming governor John Mushayavanhu said 2,5 tonnes gold reserves were kept at the central bank, with an
estimated value of US$175 million.
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Mushayavanhu said in addition to the US$175 million, the RBZ had US$100 million cash reserves.
George Guvamatanga, permanent secretary in the Ministry of Finance, said the government had a further US$300 million cash reserves in its accounts, as officials sought to dispel fears that this was not enough to defend the currency.
In an interview with the Zimbabwe Independent, Chenayimoyo Mutambasere, a development economist, said reserves announced yesterday were inadequate to defend a currency that is likely to be confronted by low market confidence.
“It is not enough,” Mutambasere said.
“Our fears are that this money and donations coming in, which should be aiding millions of Zimbabweans facing extreme poverty, are going to be diverted to finance this latest venture (structured currency), which has no indication of rescuing the economy.
“The structured currency is still ambiguous. Given the rate of gold smuggling, the reported deposits as of February 2023 are insufficient to run an economy.
“The economy rescue plan needs a multifaceted approach in order to get Zimbabwe back on track. We need governance reform and political stability.
“The roadmap to a structured currency must include stakeholder consultations to foster market confidence. This must also be accompanied by legal instruments that align with the Constitution.
“There is a huge confidence deficit that must be addressed in the first instance,” she added.
Mutambasere was backed by Tendai Biti, finance and economic development minister during the government of national unit between 2009 and 2013. He said structured currencies were generally an outdated idea, which may not work in Zimbabwe.
“The idea, in this day and age, that a government can invent a bullion-backed currency is a disgrace,” Biti said.
“You cannot buy money to protect money. You cannot buy gold in order to anchor a currency. Currencies are anchored on confidence.”
Many of the economists said they were worried about lack of confidence in Zimbabwe’s currencies.
But speaking to journalists after yesterday’s Presidential RBZ tour, Ncube said Mushayavanhu will today put to an end the market jitters.
Biti, however, said modern currencies were now anchored on social contracts.
“You can change currencies a million times, but as long as there is no confidence, that currency will not work,” Biti told the Independent.
“This regime has bastardised currency - the original Zimbabwean dollar, which at independence was value at 1:1 with the British pound and was stronger than the US dollar.
“They even bastardised the bearer’s cheque, they bastardised the original traveller's cheque,” he added.
However, Prosper Chitambara, chief economist at the Labour and Economic Development Research Institute of Zimbabwe, was optimistic. He said financial discipline would be important as Zimbabwe introduces its new unit.
“I think it can survive,” Chitambara told the Independent.
“But that survival has to be underpinned by strict monetary and fiscal discipline.
“In other words, the government has to impose a strict budgetary constraint on itself. Monetary and fiscal discipline will be crucial building blocks in terms of the stability and sustainability of any currency,” he added.
Last week, Tapiwa Mashakada, former economic development and investment promotion minister, said the only solution to Zimbabwe’s currency crisis would be dollarisation.
“Dollarisation is good for short to medium term stabilisation but the weakness is that the US dollar is sought after. Therefore there are dangers of externalisation and illicit outflows if it is liberalised without a strong regulatory framework,” he said.
“For these reasons, some have advocated for ‘randification’. The only problem with using the rand exclusively is that Zimbabwe has to apply to join the South African Customs Union (Sacu), which is comprised of South Africa, Lesotho, Eswatini and Botswana.
“The Sacu membership depends on compliance with its objective of macroeconomic convergence which, include but not limited to, a single digit inflation and 5% budget deficit, which automatically disqualifies Zimbabwe.
“Given the above, it is prudent do go back to a multi-currency regime which does not require prior official permission to use the US dollar, rand or any other foreign currency,” he added.
Zimbabwe's economy has been struggling for decades.
The Zimbabwe dollar was withdrawn in 2009 after being hit by 500 billion percent inflation.
Critics blame mismanagement by the ruling Zanu PF party, which has in turn blamed sanctions imposed by Western countries.
Zimbabwe has been introducing different currencies over the years in a bid to tame inflation.
In 1980, the Rhodesian dollar was renamed the “Zimbabwe dollar” after independence from Britain.
In 2003, Zimbabwe issued the first series of low-denomination bearer cheques to ease cash shortages.
In 2006, the country issued a second series of higher-denomination bearer cheques until 2008, with as much as ZW$10 trillion notes being issued as inflation ravaged the economy.
In 2009, a multi-currency system involving the US dollar and other major currencies was adopted to end hyperinflation, leading to the demonetisation of the local unit. In 2016, bond notes were introduced, only two years after the introduction of bond coins in 2014.
The currency first traded at par with the US dollar until reforms were rolled in 2016 and 2019.
