Online Reporter
GOVERNMENT and the Reserve Bank of Zimbabwe have been stressing for some time in their formal statements that the return to a monocurrency does not have a set date, but rather relies on meeting a series of market-led steps so the final transition will be exceptionally smooth.
With no set deadline or date, and the clear process involved in the transition, there is zero justification for the move by some banks to limit the tenure of loans to next year in anticipation of troubled waters with a switch to a monocurrency economy.
For a start, under the economic conditions set for the switch, there will be no turbulence to hedge against. Reserve Bank Governor Dr John Mushayavanhu made it clear this week that the switch will be market-led and repeated that the process was not guided by fixing a changeover date.
Banks are obviously a major component of that market that is leading the financial improvements in Zimbabwe’s economy, so will be intimately involved in how and when the changeover occurs.
They should not be delving into their own past troubles to cramp the economic expansion that has been creating the sort of balanced and rapidly growing economy that has seen economic fundamentals being recognised.
Everyone recognises that the days of ultra-short term lending and borrowing are over, and there has been a fairly positive response from some in the banking sector in building up the sort of funds that longer-term lending require.
There are certainly a growing number of sound well-managed businesses that should be able to tap longer term loan money to grow more quickly and consistently. Some arbitrary cut-off date set by a bank does not help either the bank or the borrower.
Bankers obviously need to exercise due care in building up their loan books, but that has always been the case throughout history. Bankers earn their place by being able to assess risk and other factors as they link depositors and borrowers and also lend their own capital and reserves. But the risks need to be real risks, not something insubstantial picked up in the bar of a golf club.
There are a number of conditions that have to be met before a mono-currency economy is sensible. These were set out in the National Development Strategy 2.
Key conditions are: macro-economic stability including low inflation and a stable exchange rate; an efficient and market-related and market led foreign exchange management system and adequate reserves being built up.
As Dr Mushayavanhu and many others, including the International Monetary Fund and the World Bank, have noted Zimbabwe has been successfully sorting out the fundamentals that lead to macro-economic stability.
For the first time in around 50 years Zimbabwe as a nation now earns more than it spends in international trade and markets.
This dramatic switch last year to a positive trade balance with exports exceeding imports was largely built up by Zimbabwe selling more, selling more of the higher value products as we process commodities before sale, and seeing consumer imports falling while productive imports, such as equipment and machinery, rising.
We had already switched to a market system for allocating most foreign currency with the banking sector moving into the driving seat rather than having allocations done somewhere.
That system has been grown and with the adequate flows of earned foreign currency has been working exceptionally well. Businesses have stopped complaining about foreign currency shortages and instead just talk to their bank.
These moves, along with some careful deregulation and a conservative outlook on money supply, in turn drove down inflation from the beginning of last year, seen for the whole of this year in the annual inflation rate not just being the targeted single digits but low single digits.
The adequate foreign currency and low inflation in turn led to an exceptionally stable exchange rate.
At the same time, the Government has been encouraging more use of the ZiG, now a very low-risk strategy and most formal businesses deal in both currencies without any fuss.
While markets probably want to see a longer period of all this stability to be really sure it will last, no one is expecting any sudden changes, so well as the market-led approaches are working.
The one remaining condition, adequate reserves, is being met, but slowly. The critical measure of reserves, the amount of import cover, is now hitting 1,8 months. While three months is the lowest long-term minimum most economists would like to see six months cover.
Reserves in absolute terms keep rising faster than the number of months of import cover, simply because in our expanding economy imports are also rising, although exports are rising faster. That is why import cover is the chosen measure than some arbitrary figure.
The process of currency changeover is moving forward, step by step, and largely led by businesses feeling more secure when accepting ZiG.
That is likely to continue, and so the final switch to mono-currency is likely to occur when no one is worried anymore.
