adminEarly this month, Zanu-PF during its 12th Annual National People’s Conference, resolved that the party should push for the reintroduction of the local currency to address the present liquidity crunch facing the economy.
Kingdom Financial Holdings Limited (KFHL), in a commentary said one of the key attributes of any currency was its acceptability as a medium of exchange.
“If a currency is not universally acceptable, it is not ‘liquid’ as people would have to engage into barter transactions.
“Reintroducing the local currency at this point in time, may suffer from non- acceptability as people have barely forgotten the inconveniencies of holding a worthless currency and the hassles they had to go through to access the daily limit from banks,” said the financial instution.
Between 2007 and 2008, the local currency was buffeted by hyperinflation as it continued losing value by the minute. Economic agents stopped accepting it as a medium of exchange in favour of more stable foreign currencies.
“The monetary authorities have to deal with the zillions of Zimbabwe dollars people hold in cash and in bank accounts,” said KFHL
The financial institution noted that when Government adopted a multi-currency system, it should have redeemed the local currency, adding that this still needs to be done at extreme challenge of finding a fair exchange rate that would not transfer wealth from deserving people to those that “burnt” foreign currency into Zimbabwe dollar bank balances.
Finance Minister Tendai Biti has promised to redeem the Zimbabwe dollar but the country lacks the reserves to initiate such a move.
Some quarters have proposed a gold backed local currency to guard against inflation.
“A conversion that will see too much of local currency returning into circulation will risk igniting the inflation flame that sunk the economy in 2008. A conversion that is perceived to be too mean will also invite rejection of the new currency,” said KFHL.
The financial institution said the Government was presently divided over the issue of reintroducing the local currency.
The institution noted that the divergence in goals by the parties in the inclusive Government would result in either total frustration of local currency return or at least a delayed implementation.
“The MDC formations appear keen to extend the multi-currency regime in the short to medium term, while Zanu-PF is keen to see the Zimdollar returned sooner. In his 2010 national budget, Minister Biti stated that the reintroduction of a local currency would only be seriously considered when there was evidence of a strong economy, with annual sustainable Gross Domestic Product growth rates, higher exports and higher foreign exchange reserves.
“Following up on this, the Minister in his 2010 national budget review, went on to confirm that the multi-currency system would stay until the end of 2012 and thereafter currency reforms would be guided by developments in the macro economic environment,” said the financial institution.
Commenting on the pros and cons of the reintroduction of the local currency, the institution said: “The local currency would restore the national pride given that a currency is a national symbol.
“Further, the monetary authorities would have greater latitude in monetary policies to change money supply and or interest rates. On the other hand, the greatest fear over the introduction of the local currency would disturb price stability, interest rates and the exchange rate.”
KFHL said it does not foresee the local currency being reintroduced before there has been a change in the present political setup in the country.
“It will be a hard sell for the local currency to be reintroduced now and compete with a basket of hard currencies. As long as the status quo remains, we expect the multi-currency regime to prevail and the current liquidity crunch to remain albeit gradually abetting. In order to improve our credit rating, there is a need to unlock offshore lines of credit so as to ease liquidity challenges but this requires an improved national debt position and improved political environment,” the institution said.
Online Reporter