Zimbabwe Finance Minister Mthuli Ncube today literally undressed former Finance Minister Tendai Biti when he told him that he destroyed Zimbabwe’s ability to conduct its own monetary policy completely when he adopted the United States dollar in 2009.
He said he had kept his promise to mitigate economic challenges in six months as he had eliminated deficits on a month to month basis.
Biti had asked Ncube why he was simply not demonitising the RTGS dollar (which the country adopted in February) and the bond note adopted in November 2016 and revert to dollarisation.
“On the…question pertaining to demonitisation of the RTGS dollar and adopting the US dollar, what happened when the US dollar was adopted, basically as a de facto currency during the time that the Hon. Member was a Minister, what he did is – he destroyed this country’s ability to conduct its own monetary policy completely,” Ncube replied.
“So, the Central Bank was taken out of all monetary policy ability and what was left was fiscal policy only. Those are the facts and I have said that from the beginning that we need both legs for macro-economic management, the fiscal and monetary policy legs.
“So what we did on the first of October last year was to begin the process of restoring monetary policy as an additional tool in our tool box to deal with macro-economic issues. That is what has gone on. Now, let me explain the issue of the use of the US$ further. Basically, on the US$ we do meet, Mr. Speaker Sir, challenges with transactions in US$ abroad and so forth, and perhaps members are not aware but I should make them aware that, we have had situations where we have been refused supply of US$ into the economy by certain banks who are complying with the US sanctions.”
Ncube said the surplus that the government was making was real in both RTGS and US dollar terms.
Although Zimbabwe held its elections on 30 July last year, the cabinet was only sworn in on 7 September after the presidential election court challenge lodged by the Movement for Democratic Change.
The Constitutional Court dismissed the MDC election challenge on 24 August.
Below is the full Question and answer session directed at Mthuli Ncube:
HON. BITI: Hon. Speaker Sir, my question is to the esteemed Minister of Finance and Economic Development. On the 1st October 2018, the Minister of Finance and Economic Development assumed office. He assured the country that within six months, he would have mitigated the economic challenges but ten months later, the economy is on a tailspin and there are many shortages. Given the runaway inflation which is now around 300%, given the serious implosion of the black market rate which I am told that today is trading at 1.1 to 8.2 – why as a matter of policy is the Minister simply not a) demonitising the RTGS dollar and the bond note; b) not reverting to dollarisation and the regime of multiple currencies. Thank you Sir.
THE MINISTER OF FINANCE AND ECONOMIC DEVELOPMENT (HON. PROF. M. NCUBE): Let me begin by thanking the Hon. Member for the question. There are three things in that question. First of all, it is about when I assumed office and secondly, what I promised within six months; 3) demonetising the RTGS dollar and US dollarising by default.
First of all, I did not assume office on the 1st of October. I assumed office on the 7th of September. On the reference to turning things around in six months, the fiscal position of the country has been turned around in six months in the sense that we have eliminated the deficits on month by month basis. We have surpluses and now we will start focusing on how to deal with social protection issues so as to protect vulnerable members of our society from the vagaries of inflation including the drought and the cyclone – we are beginning to do that.
On the third part of the question pertaining to demonitisation of the RTGS dollar and adopting the US dollar, what happened when the US dollar was adopted, basically as a de facto currency during the time that the Hon. Member was a Minister, what he did is – he destroyed this country’s ability to conduct its own monetary policy completely. So, the Central Bank was taken out of all monetary policy ability and what was left was fiscal policy only. Those are the facts and I have said that from the beginning that we need both legs for macro-economic management, the fiscal and monetary policy legs.
So what we did on the first of October last year was to begin the process of restoring monetary policy as an additional tool in our tool box to deal with macro-economic issues. That is what has gone on. Now, let me explain the issue of the use of the US$ further. Basically, on the US$ we do meet, Mr. Speaker Sir, challenges with transactions in US$ abroad and so forth, and perhaps members are not aware but I should make them aware that, we have had situations where we have been refused supply of US$ into the economy by certain banks who are complying with the US sanctions.
So, it is quite clear that we need to move towards having our own domestic unit account and the RTGS$ is the beginning of that. What is left now is for us to continue to fine tune the interbank market making it more efficient and also putting in place the micro institutions for making sure that monetary policy begins to work. One of the things that we have done Mr. Speaker in order to booster our balance of payment position, is to put in place a US$500 million facility which we have sourced from outside in order to deal with demands for meeting external payments from importers and others. I thank you Mr. Speaker Sir and the Hon. Member for the question.
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