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Clemence Machadu Insight
Howdy folks!
Once upon a time, way before Milton Friedman was born, there was a king called Solomon, the son of David. The wise and rich king wrote: “Money is the answer for everything.” (Ecclesiastes 10:19). Today’s economists might want to place King Solomon in the Monetarist School. If his theory about money (Money=Problem Disappear) is to be extrapolated in the Zimbabwean context, then one could hypothetically deduce that lack of money has caused all the problems we have been facing — as it were!
Spare the politics, spare the corruption, spare the sanctions — they are just scapegoats! It’s money, stupid — at least according to King Solomon’s theory.
Perhaps that is why people are talking about it all over.
Whether you are on a bus heading to Chendambuya, or in a long bank queue somewhere along Nelson Mandela Avenue, or enjoying some wise waters in a township beerhall, you are lucky to escape debates around money.
“Money, money, money” goes the popular song by Swedish pop group Abba.
I was reading a sad story about an Epworth man who is said to have set his wife on fire. The man is said to have asked his wife why she had not prepared sadza for him, to which she told him that she had no money. The husband then poured paraffin on her and set her ablaze.
Good Samaritans moved in swiftly to rescue her.
For not having money (only God knows where this man expected his wife to get it from), this man was driven to the point of torching his wife.
Folks, the money discourse taking place in the Republic points to an economy in desperate search of equilibrium.
These discourses take different forms; just like money itself has since time immemorial taken all shapes, sizes and looks.
Yet, one thing has not changed amid the melee: The definition of money itself. It has remained constant. Money is still a token that is generally accepted as a means of paying for goods and services and settling debts.
Simple.
If money is indeed the answer to everything, so to speak; why then are we experiencing economic problems in the country, with 10 choice currencies in our basket, five of which are actually hard currencies? Is it perhaps because we are using the wrong money or it is unsustainably erratic?
I would say a double yes to some extent, as I also hasten to say that the central bank is supposed to lead us to a new equilibrium destination where money answers all problems.
And in leading us there, our primary economic objectives should be the sole compass that we look at for direction.
The Reserve Bank of Zimbabwe is empowered by Section 317 of the Constitution to regulate the monetary system and “protect the currency of Zimbabwe in the interest of balanced and sustainable economic growth”.
We cannot protect any of the nine foreign currencies in our basket and perhaps that is why our economy has been grappling with things like deflation, recession and the rest on that catalogue.
Neither can we do that through piecemeal interventions such as bond notes to be backed by the US dollar that is itself backed by nothing — what economists call fiat money.
Therefore, if bond notes are backed by US dollars that are backed by nothing, then the law of transitivity says the bond notes will be backed by nothing.
Against the above background, instead of using the US$200 million Africa Export-Import Bank facility to introduce bond notes that are backed by nothing, I propose a different approach.
The central bank should rather use the money to buy gold, and then use that gold to back a digital currency that can be introduced to buttress the multi-currency system in the short term, but eventually acting as a de-dollarisation measure in the medium to long term.
The money is enough to buy about five tonnes of gold outrightly and then we more can be created as production takes place. As a by-product, the offloaded US$200 million will support gold production and its downstream industries.
Zimbabwe is targeting to produce 30 tonnes of gold by 2020, translating to about US$1,5 billion.
Before I give details about the digital currency, let me first highlight the fundamentals that are already in place to support the successful implementation of this system.
Zimbabwe has already had a good experience with mobile money through platforms such as EcoCash, Telecash and others.
By December 2015, the number of mobile money subscribers stood at 7.3 million.
Zimbabwe’s mobile penetration rate also increased in the last quarter of 2015 to 95,4 percent, with the three mobile network operators accruing 12,7 million active users in total.
Here, we see that virtually every Zimbabwean has a mobile phone. That combined with our very high literacy rate of 92 percent can work wonders for the digital currency system.
In light of the above, the RBZ can change the way we look at our national currency system by converting the bond facility into a gold-backed digital currency that will only be used through mobile phones and perhaps extended to swipe cards.
That way, only the remainder of the US$50 million bond coin facility will now be printed in notes.
And those notes, along with the coins in circulation, will help to cater for those without phones and those in dead zones.
The rest of the US$200 million bond note facility will be converted into digital currency and transactions can just happen over the phone.
Since the central bank will be running the show, transactions can happen at no cost.
That way, folks can even buy madomasi pamusika using the digital currency over their mobile phones; or pay for their medical expenses at Parirenyatwa.
Transacting in digital currency will entirely be voluntary, with members of the public being well-educated on the merits of the digital currency and encouraged to embrace it.
The advantage of digital currency is that it will widen access to financial services by reaching out to the unbanked.
We are already trying to promote financial inclusion and the current modus operandi won’t do much.
The central bank aims to increase the number of people accessing banking services to 11,7 million by 2020, as 70 percent of Zimbabwe’s population is currently financially excluded.
However, banks cannot achieve this level of financial inclusion given their rigid approaches.
Banks, for instance, discourage people from opening accounts by demanding things like payslips in an economy where 95 percent of workers are employed in the informal sector.
Where do you expect Museyamwa to get a payslip?
But in the digital currency system, Government will remove all those barriers for opening a bank account so that it can happen even on your phone.
A digital currency will also take care of the wear and tear associated with notes.
It also cuts costs associated with designing, printing and transporting paper currency, and curtails bank robberies.
Even smuggling will be deterred as the movement of digital money can easily be traced online.
For this mechanism to work, Government has to administer the digital currency through the central bank.
Individuals can be allowed to open bank accounts and can also look at possibilities of integrating the system with the mobile money model that is already in place.
The question will remain on whether the RBZ will not create excessive money through this process, which may be inflationary eventually.
It is understandable for folks to think that Government might put pressure on the central bank to overprint in darkness (even though people were not surprised when America printed US$3,5 trillion in broad daylight, out of thin air, after the 2008 financial crisis).
Nevertheless, there are concrete measures that can be put in place to ensure everything tallies.
For instance, an international and reputable auditing firm can be employed to audit the money creation and supply process in relation to the gold in reserve.
Savings from costs associated with printing notes and replacing destroyed ones will be used to pay the auditors.
With gold-backed digital currency, we might be looking at a whole new world of undreamed possibilities!
It can be the answer to everything!
Later folks!
Online Reporter