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Monday, June 18, 2018

Zimbabwe Must Introduce their Own Currency



Zimbabwe must have own currency

ZIMBABWE should introduce its own currency that will be backed by commodities to deal with the prevailing cash crunch, a Minister has said.

Addressing delegates at the Chief Executive Officer (CEO)'s roundtable on financial market distortions and prospects of currency reform in Bulawayo on Friday, Finance and Economic Planning Deputy Minister Terrence Mukupe said one of the major reasons for the prevailing cash shortages was solely to the fact that the money was not circulating through the normal banking channels.

"Technically if we were to introduce our currency right now you would probably let it float between a $1.50 ZWD ($0.67 USD) and $2.00 ZWD (0.50 USD), that's where it should settle at. That would be the solution to our current problems.

"We have to adopt a national currency without a doubt and there has to be a cap on the maximum release of how much of the new currency you are going to put out. The numbers that are there right now are indicating probably that the maximum release is not more than a billion dollars," he said.

Dep Minister Mukupe also said dollarisation was a short term economic stabilisation measure, further stating that it has led to shortages of currencies on the local market.

He said there was a need to re-introduce a local currency backed by the country's commodities.

"Releasing US dollars as our national currency is a temporary measure but if you release a new series as Zimbabwe’s currency that would work. Then it becomes an issue of what are you are backing the currency with. What is it that we have right now that we can use to back our currency? What's probably feasible and what's probably sustainable is you could back it using you forex facilities, your diamond stocks because our forex facilities have been gold backed for the last part and there isn't much capacity there but our diamond stocks are run and covered for the most part," said Dep Minister Mukupe.

Speaking at the same event renowned economist Dr Persistence Gwanyanya said market distortions have contributed significantly to the prevailing cash crisis in the country as the financial market continues to face vulnerability emanating from unstable currency, lack of lendable of last resort and formidable inter-bank market.

"One of the reasons causing the financial sector to perform (poorly) the way it has performed is as a result of the shortages of foreign currency. But clearly what contributed to the shortage of foreign currency is the market distortions. There is a strong link between market distortions and the shortages of foreign currency," he said.

Dr Gwanyanya said the era of dollarisation has diminished and it was time for policy makers to come up with fundamentals for the re-introduction of the local currency.

"It seems dollarisation has reached its sell by date, it would appear the best solution is for the country to re-introduce its own currency. I know some of you might not be comfortable with this proposition but this will be the best proposition for the country going forward," he said.

Dr Gwanyanya said while dollarisation and the introduction of the bond notes provide a cash relief these two might be liable for worsening the cash crisis.

"The economy stabilised after dollarisation but when the Government found another way to intervene in the market through unconventional ways of issuing Treasury Bills as well as drawing on the RBZ, fiscal indiscipline has seen the economy receding again since 2012.

"It seems the bond notes have now succumbed to the Gresham's law, they might be driving away real money in the economy.

The four-tier pricing system is another reflection of the market distortion, which arose as a result of the cash challenges and the bond notes.

In economics, Gresham's law is a monetary principle stating that "bad money drives out good".

He said the prevailing foreign currency shortage was as a result of the unbalanced economy accelerated by trade deficit as well as budget deficit.

Dr Gwanyanya said the country should come up with a permanent solution to address the prevailing cash crisis in the country as Government's interim measures were proving to be futile.

"The country should foster a permanent solution to the cash crisis, half measures predicated on integrationist policies no longer work, they will not work, they cannot work."

He said the country should introduce its local currency backed by its commodities.

"Zimbabwe is a commodity-based economy, like all other commodity-based economies, such as oil dependent economies we should base our currency on commodities. We should develop infrastructure basing on our commodities, sustain our currency on our commodities.

"There is no reason why we say Zimbabwe has got trillions of commodity resources that runs into trillions of dollars yet it can't sustain its economy, worse still it can't sustain its own currency, Zimbabwe should re-introduce a commodity-based currency," Dr Gwanyanya said.

He, however, applauded the Government's move of building diamond and gold reserves to back the local currency upon its re-introduction.

"The major reforms in the economy also need to be done to reduce the economic imbalances that continue to weigh down the economy and to make it unable to sustain any currency."

https://bulawayo24.com/

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