adminClemence Machadu Insight
Howdy folks! Inasmuch as many have taken to setting the narrative on currency developments in Zimbabwe in order, it seemed good to me also to share my two cents.
The South African rand is accruing mileage by the day, if pronouncements by business, labour, politicians, bankers and even the Fourth Estate are anything to go by.
Banks are tired of importing the greenback that is wiped away in a wink, much to the frustration of their depositors who have had to endure long queues to get capped amounts of their banked incomes.
This has also aroused anxiety at the central bank, players in the banking sector and depositors.
Depositors are somehow wary of keeping their money in banks as they are uncertain whether the cash situation will worsen or otherwise.
They ask what if a time comes when they won’t be able to withdraw even US$10 per day?
So they would rather withdraw their money and keep it under their mattresses.
This is the current thinking, which has unfortunately been discouraging new deposits as well.
And for many small shops that sell cheaper merchandise, especially those that are owned by foreigners, most of them don’t bank their sales proceeds.
Recently, a Rwandese duo was caught at the Harare International Airport trying to smuggle US$97 000 out of the country.
Then you begin to wonder if it was their first time doing so, and who else is doing it.
All this leaves our financial sector vulnerable as deposits are left depleted due to more liquidity leakages than injections.
The net effect is that both bank charges and lending rates will be left under pressure to increase as has been the case recently.
What can be concluded in all this is that the greenback can no longer breathe confidence in Zimbabwe’s financial sector. Which is true!
I am on record arguing, as far as a couple of years ago, that the US dollar’s honeymoon has ended and we need a currency that sustainably buttresses our new economic development goals.
The thinking of those now lobbying for the rand to be the anchor currency in Zimbabwe is correctly informed by the above developments.
This is, however, happening at a time when South Africa recently recorded an all-time low business confidence index of 79,3 percent in May; with inflation rising, lending rates steepening, while its currency is also weakening.
South Africa’s real GDP forecast for 2016 has now been cut from 0,8 percent to 0,6 percent.
An IMF delegation that visited South Africa last month pretty much summed it all saying, “South Africa faces a challenging economic environment.”
The question therefore is: is the rand the best line of fit for our economy right now?
Can it render an amusing rendition for every economic agent in Zimbabwe to dance?
Folks, aren’t we shooting in the dark in our quest to land the bullet on an ideal currency that can optimally fit into our economic matrix?
We get an awkward impression when we realise that even the central bank had to abandon its plan to automatically convert 40 percent of US dollar-denominated exports into rand after business raised its reservations.
This was reversed in less than a week after its implementation.
One would be pardoned for probing whether business had been consulted at all, in the first place, as this could have been simply picked at consultation stage.
This cowboy is getting the impression that some folks’ inclination to fall in unrequited love with the rand is unfortunately based on their interpretation of current trade dynamics, which are absurd anyway.
Everyone is saying the majority of our exports and imports are going to and coming from South Africa, respectively (as if it’s a good thing), hence the need to adopt the rand in our Republic.
Somehow, it’s almost akin to a paedophile that has raped a minor and now tries to convince the judge that he can marry her. How convenient!
Should the current trade dynamics be the main determinant of our currency option?
Certainly not.
This is not a weighty reason to be cited for a decision of this magnitude. Our exports are concentrated to South Africa, just as much as our imports are, and that is not a good thing.
What we actually need is trade diversification, to spread our eggs in different baskets.
There are many more attractive export and import markets out there that need to be tapped into. And when that happens, South Africa can end up playing a minor role.
Again, we cannot celebrate that South Africa is our biggest trading partner when the majority of our exports there are raw materials while the majority of imports are finished products.
What should also be noted in this currency discourse is that it’s not really about replacing the US dollar with the rand. It’s much about addressing the reasons why people are smuggling currencies out of Zimbabwe.
Why is the US dollar being smuggled out of our resource-endowed country?
Folks, it’s about the cost of doing business and lack of competitiveness in Zimbabwe.
So long as people find arbitrage in using the US dollar elsewhere, they will continue to use Zimbabwe as a conduit to round up the currency and find legal and illegal ways of taking it elsewhere they can make a better return out of it.
You see, even if we are to make the rand the main actor today, what stops people from taking it back to South Africa, where it has better spending power, and to other countries in the Common Monetary Area of the Southern African Customs Union where the doing business environment is better than that of Zimbabwe?
Those acting in favour of the rand should not forget that the South Africa Reserve Bank is really not a regional bank that acts in the best interest of every regional country.
It is rather a sovereign bank that represents the interests of South Africa, first and foremost, with those of other countries like Zimbabwe coming last.
An old adage goes, “mombe yekuronzera ikama wakaringa nzira.”
If one is to be controversial, they would say the Zimbabwe dollar would be the most ideal currency for Zimbabwe right now, compared to any other currency we are using right now.
And there may be an element of truth in that calibre of controversy, if interrogated liberally.
But in the absence of a local currency, another might also want to throw the Chinese yuan in the basket of alternative currencies that are being proposed to replace the US dollar.
China may not be our top trading partner but much of our capital is coming from the Eastern nation.
We were left in suspense last year when Finance Minister Patrick Chinamasa said, “Reserve Bank of Zimbabwe Governor Dr John Mangudya has opened negotiations with People’s Bank of China.
“This is to see whether we can enhance the use of the renminbi in Zimbabwe. Discussions are underway as we speak.”
Rand versus yuan, what is the better contender?
The IMF has decided to include renminbi as part of the Special Drawings Rights basket starting October this year, with China being placed among the Fund’s top three shareholders.
But I don’t want to say much about the yuan so far apart from just putting it on the spotlight for more scrutiny.
Later folks!
Online Reporter