Online Reporter
ZIMBABWE is moving steadily towards having a single currency for all internal transactions and business by 2030.
Very few countries use two currencies for domestic transactions, although many have to use foreign currencies for international transactions.
Zimbabwe has adopted a multi-currency regime, effectively having the US dollar and the ZiG being used together.
While most people live within this system quite honestly, and it has been around for some time, there are those who enjoy manipulating the system to enhance their own wealth and some of the business decisions that are made would not make sense in a single-currency system. In any case there are strains arising from the complications of a double currency, including those in part of the banking system.
We would agree that most people will have bad memories of past local currencies and the bouts of high inflation that wrecked them, starting with the total destruction of the then Zimbabwe dollar early in 2009.
Efforts to reintroduce a local currency produced less dramatic inflationary spurts, largely because while fiscal discipline under the Second Republic was solid, and monetary policy was equally strong, there were gaps in the system that allowed money supply to be increased in areas outside Government control.
It took some doing but eventually all these taps were found and switched off, hence the stability now seen by the ZiG.
A lot of work has been done in making sure that the ZiG is a good currency and will be acceptable after 2030, when it becomes the only currency. This goes beyond just making sure that there cannot be uncontrolled money supply, but requires a number of firm fundamentals.
The first, introduced at the beginning of the Second Republic, was fiscal discipline and tight budgeting, something that had been lacking.
Basically, Zimbabwe’s Government only spends what it takes in taxes, certainly for all recurrent expenditure and even on the capital account, a small amount of borrowing is only allowed when this results in almost instant and guaranteed income to service and repay the borrowing. Even the return of concessionary external funding will not change this formula much.
The fiscal discipline was reinforced during the earlier years of the Second Republic, when it was discovered that there were money making schemes among some suppliers able to use two currencies. The solution was to start making certification of value given a recorded decision by the permanent secretaries of ministries, ensuring more responsibility.
At the same time President Mnangagwa recognised that a national currency with zero reserves was an anomaly and would create rather than solve problems. An innovation was used to create the reserves and make sure they grew by assigning half the mineral royalties that all miners must pay to these reserves and asking the miners to pay in minerals. This also made sure that the bulk of the reserves would be in gold, since where currency payments are possible or even needed these can be converted to gold.
So Zimbabwe has been moving from a currency that had zero backing to one backed by gold, although obviously more flexibility will be needed in time. But the main concept is that all the ZiG in existence, in private and public hands, can be backed at more than 100 percent. That does make a difference.
There are those who say that even if the ZiG is going to be so controlled, why not just keep the US dollar as this should be even easier. We saw the problems here during the decade when the US dollar was the only effective currency. Growth was slow and the areas of growth tended to be in retailing imported consumer goods rather than production.
Secondly there are simply not enough US dollars in Zimbabwe for consistent business operations and growth. Businesses were complaining about the lack of liquidity and this shortage was seen as so serious that several innovative if misplaced efforts were made to sort it out.
Attempts to fix the problems of liquidity eventually produced an unplanned split in US dollar holdings between what was in the banks and what was in the form of banknotes in wallets.
That meant an unplanned reintroduction of the local currency and the sort of inflation surges that we saw until a new start was made with the planned introduction of a local currency, rather than trying to bring total order to an unplanned mess.
By doing things right this time round, we have been creating a reasonably good currency. While stability is important, all currencies move against each other, gaining and losing, but almost always by small amounts each year and without any giant swings. A good example in our part of the world is the rand, which while not locked to the US dollar or any other currency, does not move dramatically although there has been a definite trend over decades of gradual movement down in response to other national and international circumstances.
The Government and the Reserve Bank of Zimbabwe are correct in making sure that all Zimbabweans and especially those in business will be able to plan effectively for the mono-currency normality.
The road map will be spelt out in the National Development Strategy 2 covering the period from next year to 2030. This means that everyone will be able to monitor progress and have the time to adjust their own decision making. While there were those who wanted a big bang, that we all woke up one morning to find a mono-currency world, the more responsible fiscal and monetary authorities see a well-planned process is far better, and far less likely to blow up in anyone’s face.
It is generally agreed that we have now got the fundamentals right so the journey can be undertaken without danger and with only progress and growth being guaranteed.
